Russian industrial output was weaker than expected in July, data showed on Monday, suggesting that June's sharp slowdown in growth was only partly due to workers downing tools to watch Euro 2008 football games.

July's 3.2 percent annual growth was an improvement on June's surprisingly low 0.9 percent, which was blamed largely on one-off factors such as low productivity as people watched and celebrated Russia's unexpectedly strong performance in the tournament that month.

However, the July figure undershot a consensus forecast of 4.9 percent and was less than one-third the 10.3 percent pace reported a year earlier.

For January to July, year-on-year growth slowed to 5.4 percent compared with 7.6 percent in the same period of 2007, suggesting that Russia's nearly decade-long economic boom may be starting to run out of steam.

"The July figures are unpleasant. They suggest that June wasn't the only bad month, and it wasn't only football that caused the slowdown in growth," said Yevgeny Nadorshin, senior economist at Trust Bank.

High taxes have meant that oil companies have not borne the full benefit of the surge in crude prices, leading some to complain that they lack funds for development of new fields and thus potentially constraining production: Extraction of raw materials was down 1.4 percent compared with 2007.

Overall output was also dragged down by manufactured goods, which include the construction sector. There, annual growth slowed to 4.6 percent, less than one-third of the pace a year ago.

Natalya Orlova, chief economist at Alfa Bank, said things for the sector will only get worse as the outflow of capital from foreign investors spooked by Russia's conflict with Georgia this month pushes up companies' borrowing costs.

"The scenario of which we have to be wary in the second half is if borrowing costs increase, and companies have fewer funding sources for their projects," she said.

"In such circumstances, Russian companies tend to decrease their output to prop up prices, as we are seeing in the construction sector."

Finance Minister Alexei Kudrin estimated that the conflict with Georgia over its breakaway South Ossetia region has cost Russia $7 billion in capital outflows. During that period, overnight interbank rates jumped to nearly 8 percent. Despite retreating to 5.73 percent Monday, they still remain far higher than pre-conflict levels around 4.5 percent.

The funding crunch is also visible in the still-high demand at Central Bank repo auctions, despite their relatively high rates of about 7 percent: 56.57 billion rubles was injected at Monday's first offering, compared with 0.73 billion on July 18.

Nadorshin said the impact of the liquidity crunch would be reduced by cash injections from the Finance Ministry, which already holds weekly auctions, and the state-owned Housing Reform Fund, which will start auctions from Aug. 28.

"But it could of course impact long-term projects," he said.