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. Last Updated: 07/27/2016

Services Sector Expansion Hits 12-Month High

Russia's services sector expansion hit a 12-month high in May lifted by strong domestic demand, which suggests economic growth might exceed the official 4.6 percent forecast this year, Moscow Narodny Bank said Tuesday.

The bank's Services Purchasing Managers' Index, which provides a single-figure measure of the services economy, rose to a seasonally adjusted 59.6, its highest reading since May 2002.

Readings above 50 signal expansion on the previous month, readings below 50 point to a contraction. The services index stood at 58.2 in April.

"Demand remains strong in the services sector ... and on the basis of growth rates for actual activity and new business, the dynamism of the sector suggests that overall GDP growth this year should exceed the official forecast of 4.6 percent," said Paul Forrest, group economist at MNB.

The bank said the PMI rise in May reflected improvements in growth rates of both activity and new business.

In response to the substantial rise in workloads, staffing levels in the service sector increased, the growth of employment accelerating to its fastest level for a year. Overall input price inflation remained significant last month because of higher rental costs, supplier prices and a strong euro that made imported goods more expensive.

But the bank said business morale -- although still strong in May -- slipped to its lowest level in the survey's history.

MNB's survey covers all main sectors of the services economy, excluding retail, distribution and government.