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Russian Services Gauge Unexpectedly Falls After 33-Month Advance

July 3 (Bloomberg) -- Russia’s services industry contracted in June for the first time since a heatwave disrupted business in August 2010 as signs mount that wobbly domestic spending threatens the country’s recovery prospects.

The HSBC Russia Services Business Activity Index dropped to a seasonally adjusted 48.8 in June from 51.4 the previous month, HSBC Holdings Plc said today in an e-mailed statement, citing data compiled by London-based Markit Economics. Economists forecast a drop to 51, according to the median of three estimates in a Bloomberg survey. The drop below 50 signals a “modest contraction,” according to the statement.

The world’s largest energy exporter is failing to gain traction to halt an economic slowdown that’s cut growth to the weakest pace since a 2009 contraction. Turmoil on global markets last month and “fears” of a devaluation of the ruble may have damaged consumer and business sentiment, according HSBC.

“Service providers have just responded to the past weakness in manufacturing, with this weakness filtered through long production chains onto the service sector,” Alexander Morozov, chief economist for Russia and the Commonwealth of Independent States at HSBC in Moscow, said in the statement. “Service providers should see stronger demand and output growth down the road if manufacturing keeps growing like in June.”

The Micex Index of 50 stocks fell for the first time in four days, dropping 0.5 percent to 1,331.03 as of 10:52 a.m. in Moscow. The ruble weakened 0.1 percent against the dollar to 33.1925.

Sharp Deterioration

New business volumes dropped in June for the first time since August 2010, according to the statement. A measure of expectations for the coming 12 months “deteriorated sharply” to the worst level in four and a half years, HSBC said.

Russian consumer spending decelerated in May, with disposable incomes unexpectedly shrinking for the first time since October 2011. Retail sales rose 2.9 percent from a year earlier, compared with a 4.1 percent increase in April, the Federal Statistics Service in Moscow said June 20.

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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