Russian factory output contracts in July at quickest pace since March 2022, PMI shows

(Reuters) -Activity across Russia's manufacturing sector declined at its fastest pace since March 2022 in July, a business survey showed on Friday, with business confidence slipping to an almost three-year low.

The S&P Global Purchasing Managers' Index (PMI) for Russia's manufacturing sector fell to 47.0 last month from 47.5 in June, sliding further below the 50 mark separating contraction from expansion. 

The survey signalled a "solid decline in the health of (Russia's) manufacturing sector", S&P Global said. 

The second sharp downturn in as many months was driven by weak client demand and financial difficulties for customers, S&P Global said, impacting both output and new orders. 

"The reduction in production levels was commonly linked to lower new order inflows and weak demand conditions amid challenges securing finance and receiving payments," S&P Global said.

Russia's significant spending on military equipment and weapons since invading Ukraine in February 2022 has buoyed a manufacturing sector that otherwise may have suffered as some countries shunned Moscow. 

But industrial output growth has started slowing in the past year, federal data shows, and borrowing costs have been at 20-year highs for several months. The central bank slashed its key interest rate by 200 basis points to 18% last week.    

New orders contracted for the fourth time in five months, with the pace of decline accelerating to the sharpest since March 2022. However, new export orders showed a marginal increase for the first time in five months, attributed to stronger demand in existing markets.

Business confidence remained positive but slipped to its lowest since August 2022. 

"Although companies hope that investment in new products and facilities will support output growth, economic uncertainty and reduced purchasing power at customers dampened positive sentiment," S&P Global said.

(Reporting by Alexander Marrow; Editing by Toby Chopra)