Russia Manufacturing Unexpectedly Shrinks as PMI at 43-Month Low

Russian manufacturing unexpectedly shrank in July, with a gauge of conditions in the industry falling to the lowest since December 2009 and marking the first contraction in almost two years, according to HSBC Holdings Plc.

The HSBC Russia Manufacturing Purchasing Managers’ Index fell to 49.2 from a four-month high of 51.7 in June, HSBC said, citing data compiled by London-based Markit Economics. The median estimate of three economists in a Bloomberg survey was for a drop to 50.9. Readings above 50 indicate expansion.

Declining production follows a surprise contraction in service industries in June, adding to evidence the Russian economy is slowing. The drop, combined with signs of a weakening labor market and slower inflation, suggests stimulus measures may help revive growth, according to HSBC.

“This should move forward cuts in key policy rates in Russia,” Alexander Morozov, chief economist for Russia at HSBC, said in the statement. “Output, new orders and employment –-all key PMI indexes –- marked significant falls to below the 50 point no-change mark in July.”

The RTS Index of 50 stocks climbed 1.1 percent to 1,328.41 as of 11:14 a.m. in Moscow. The dollar-denominated gauge has retreated 13 percent this year, compared with a 10 percent drop in the MSCI Emerging Markets Index.

Rail cargo volumes tumbled 2.2 percent in July from a year earlier, state-run OAO Russian Railways said today in an e-mailed statement. The contraction will probably slow to 1.5 percent in August, Chief Executive Officer Vladimir Yakunin told reporters yesterday outside Moscow.

Economy Slows

Economic growth decelerated to 1.7 percent in the first half, according to Economy Ministry estimates, from a 3.4 percent expansion for 2012. Signs are emerging that the economy is operating below potential, meaning fiscal or monetary stimulus may help bolster output, Economy Minister Alexei Ulyukayev said at a cabinet meeting July 25.

The central bank refrained from cutting its main lending rates for a 10th month in July as inflation remained above this year’s target range of 5 percent to 6 percent. Policy makers will keep the overnight auction-based repurchase rate at 5.5 percent at their next meeting August 9, according to the median estimate of 14 economists in a Bloomberg survey.

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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