(Reuters) – Growth in domestic client demand spurred increased activity in Russia’s services sector in April as new export business contracted, a business survey showed on Thursday, with firms’ confidence level rising to its highest since July.

The S&P Global Purchasing Managers’ Index (PMI) for Russian services dropped to 55.9 from a 2-1/2-year high of 58.1 a month earlier, but remained above the 50 mark that separates expansion from contraction for the third month running.

The rise was the second fastest since June 2021, driven by a strong increase in new domestic orders as new export orders fell for the 13th time in the last 14 months, a trend directly associated with Russia’s decision to send tens of thousands of troops into Ukraine in February 2022.

“New orders expanded in line with a sustained rise in client demand and increased customer referrals,” S&P Global said. “Greater client demand supported a further rise in workforce numbers during April.”

“Input costs at service providers increased at a steep rate in April,” S&P Global said, with firms passing those on to clients, leading the pace of charge inflation to accelerate to its sharpest since last December.

As hiring and orders picked up, so did hopes for the future.

“Positive expectations reportedly stemmed from planned investment in facilities and service lines, as well as hopes of greater client demand and new customer acquisitions,” S&P Global said.

A sister survey on Tuesday showed activity in Russia’s manufacturing sector grew for the 12th month running in April and new export orders ended a 14-month sequence of decline, while inflationary pressures regained momentum.

(Reporting by Alexander Marrow; editing by John Stonestreet)

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