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Russia back to ‘golden’ age in October, while Europe struggles

Russian private businesses continued to grow in October, with new orders in the service sector rising the fastest since the start of the crisis in 2008. This makes the country a bright spot where even Germany Europe’s largest economy suffered.

In October the Purchasing Manager Index (PMI) for Russia’s service sector rose for the third consecutive month to reach 57.3 on a 100 scale. This marks the strongest growth rate since May 2011. In the survey conducted by HSBC a reading of 50 serves as a dividing line between economic contraction and growth.

New orders for the Russian service sector grew “at a pace not seen since before the global financial crisis in late-2008,” the report said. And the industry is quite optimistic about the coming 12 months, with companies saying they expect the economy to grow and their investment plans to realize.

“Russian service providers supported manufacturers in reporting strong improvements in business activity and new orders in October. It looks like we are back to the ‘golden’ pre-crisis years in this respect, with an extra bonus of lower inflationary pressures in the economy,” Aleksandr Morozov, Chief Economist at HSBC for Russia and CIS commented.

Among other countries reporting on their service sector on Tuesday were such economic powerhouses in Europe as Germany and France, as well as struggling Italy and Spain. Private businesses in these countries were suffering in October, with even Germany saying its economy kept on contracting. A report said both the country’s manufacturing and services were down in October. “A back-to-back monthly reduction in private sector employment further suggests that the German economy is approaching the year end on a weaker footing, as lower workloads and worsening economic sentiment continue to bite,” Tim Moore, an author of the report for Germany said. 

In France, the region’s number two economy, poor performance of its service sector was also coupled with “a steep fall in manufacturing output.”  “The pace of contraction in private sector output during the last two months has been the sharpest since the post-Lehmans slump in early 2009,” according to Jack Kennedy, who tailored the report for France.

Italy also suffered in October, “under the weight of austerity as well as economic and political uncertainty,” the report said. Another debt-ridden country – Spain – said October didn’t show any signs of improvement in the sector, with service providers becoming increasingly pessimistic about 2013. That’s because “the crisis persists and austerity measures aimed at reducing the government’s budget deficit further sap domestic demand,” the report concluded.