3. MNI Russia Business Report - June 2014 3
MNI Russia Business Report - June 2014
Contents
4 Editorial
6 Executive Summary
10 Economic Landscape
14 Indicators
15 MNI Russia Business Indicator
16 Production
17 New Orders
18 Export Orders
19 Productive Capacity
20 Order Backlogs
21 Employment
22 Inventories
23 Input Prices
24 Prices Received
25 Financial Position
26 Interest Rates Paid
27 Effect of Rouble Exchange Rate
28 Supplier Delivery Times
29 Availability of Credit
30 Data Tables
34 Methodology
4. Spitzzeile Titel4
Russia’s suspension from the G8 club in March has
left it side lined on the world stage, hurt its political
standing and damaged its prospects for growth.
Out of the Club
5. MNI Russia Business Report - June 2014 5
Russia’s suspension from the G8 club in March has
left it side lined on the world stage, hurt its political
standing and damaged its prospects for growth.
Russia enjoyed its membership of the G8 group of
countries for 17 years, but was frozen out after
Moscow annexed Crimea, a move that threatened
international stability and security. Adding insult to
injury, the G8 had been due to meet in Sochi in early
June, where President Putin could showcase Russia’s
Olympic achievements. Instead it was held in Brussels,
and although Putin was physically absent from the
meeting, he was the main topic of conversation.
Russia has tried to downplay the importance of it
being barred from the G8 pointing to other supranational
bodies as being more significant. “If our Western
partners believe that such format is no longer needed,
let it be so,” Russia’s foreign minister Sergei Lavrov
said earlier this year. “We aren’t clinging for that
format, and we won’t see a big problem if there are no
such meetings for a year, or a year-and-half,” he
added.
Russia still remains part of the G20, a group that has
grown in importance having effectively taken over the
role from the G7 of ensuring international financial
stability. Its members make up two-thirds of the
world’s population and account for 85% of global
GDP. As emerging markets continue to strengthen
then so too will the G20, especially if China chooses
to take a greater role. But, in spite of the growing
importance of the G20, the political power of the G7
remains a force to be reckoned with. And, in spite of
Russia’s public antipathy to being left out in the cold,
being forced out of the G8 represents loss of power
and influence on the world stage.
President Putin, having seen the negative impact of
the Ukraine crisis on domestic growth, has already
started to adopt a slightly more conciliatory tone.
Sanctions from the EU and US may be reasonably
limited, but our business survey shows the negative
impact they’re having. The Russian President’s
historic deal with the Chinese to supply gas is
supposed to show the West that Russia has friends
and growth prospects in the East, but it remains
very reliant on Europe.
What Russia needs is more trade and business links
with both the East and West, but a continued stand-
off over Ukraine will do nothing but hurt its growth
prospects further. Russia may not be too concerned
about not being part of the G8, but from an economic
point of view, it would certainly help if it came in
from the cold.
Shaily Mittal
Philip Uglow
MNI Indicators
6. Spitzzeile Titel6
Russian business sentiment recovered marginally
in June, although it was still considerably down
since the start of 2014 as business confidence has
been affected by the sanctions from the west.
Executive Summary
7. MNI Russia Business Report - June 2014 7
Russian business sentiment recovered slightly in June
following its sharp decline in May to the lowest level
in five months. It was still considerably down from the
start of 2014 as business confidence has been
affected by the sanctions from the US and EU and
amid a sharp slowdown in economic growth.
The MNI Russia Business Indicator rose to 50.5 in
June from 49.2 in May, although was 12.6% below
the level seen in June 2013.
Current conditions for Production remained broadly
stable after declining to the lowest level in two months
in May. The Production Indicator stood at 55.5 in
June compared with 55.3 in the previous month,
although it was significantly below the 60.8 outturn
seen in the same period a year ago.
Companies’ export orders rose for two consecutive
months in June, although were still in contraction,
following a record low level in April when tensions
with the EU and US over the situation in Ukraine were
at their height.
Given the current weak demand backdrop, Order
Backlogs have contracted for four months in a row to
45.4 in June from 42.3 previously.
The Employment Indicator declined for the first time
in five months to 50.5 in June from 52.8 in the
previous month.
The current weak economic conditions, coupled with
the tensions in Ukraine, have created a highly
uncertain business environment for many companies
who have chosen to run down stocks. In Q2 2014,
the level of inventories averaged the lowest since the
start of the survey.
In spite of a slight decline in input prices, companies
decided to raise the prices charged for their goods
and services for the first time in five months. The
Prices Received Indicator rose to 51.3 in June
compared with 50.0 in May.
The Effect of Rouble Exchange Rate Indicator, which
measures whether the exchange rate is helping or
hurting businesses, declined to 50.3 in June,
offsetting the gain recorded in the previous month to
53.3.
Fewer companies had better access to credit in June
as compared with the previous month. The Availability
of Credit Indicator decreased by 3.7% to 57.7 from
59.9 in the previous month, the first fall in four
months.
40
45
50
55
60
65
70
75
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
MNI Russia Business Indicator
Current Conditions
Future Expectations
9. Russian business
sentiment recovered
slightly in June
following its sharp
decline in May.
However, most companies did not expect their
overall business conditions to change much in the
following three months as the Expectations Indicator
was flat at 52.5 in June.
10. Spitzzeile Titel10
The stand-off with the west over the situation in
Ukraine continues to dominate the news. Tensions
escalated further when Russian energy producer
Gazprom cut off natural gas supplies to Ukraine
following non-payment of a $2 billion bill.
Economic Landscape
11. MNI Russia Business Report - June 2014 11
The stand-off with the west over the situation in
Ukraine continues to dominate the news. Tensions
escalated further when Russian energy producer
Gazprom cut off natural gas supplies to Ukraine
following non-payment of a $2 billion bill. The EU has
urged Russia to calm the tensions, warning that they
would otherwise introduce fresh restrictions on trade
with Russia, possibly including sector-wide sanctions.
The Russian economy faces numerous issues ranging
from the weakening of the rouble, spiralling prices
and stalled growth. Consumer price inflation rose in
May at the fastest pace since August 2011, leaving
the central bank little option to maintain a tightening
bias with a risk of a further hike in rates should
inflation continue to increase. More positively,
industrial production picked up in May and
manufacturing output posted the highest growth in
six months. The rouble has gained slightly from the
previous month, but is still 5% down on the year.
Low economic growth
Economic growth remained extremely weak at the
beginning of 2014, slowing to 0.9% in Q1 compared
with a year earlier, down from growth of 2% in Q4
2013 and 1.3% in Q1 2013. Capital investment
contracted by 4.8% in Q1 compared with a year
earlier. Consumption remained relatively firm, but it
reflected a one-off public sector pay increase and so
is unlikely to be sustained.
Russian ministers had predicted GDP growth of 2.5%
this year before the Ukrainian turmoil. However, this
has been dramatically reduced to just 0.5%, following
paltry growth of 1.3% in 2013. Central Bank governor
Elvira Nabiullina also revised the growth rate for 2014
to 0.4%, below the government’s forecast, though
expected a slight acceleration in the second half of
the year.
The International Monetary Fund thinks that Russia is
already in recession, amid warnings from US and EU
leaders that they are ready to take further action
against Russia if there isn’t a de-escalation in the
situation with Ukraine.
Industrial production expands in May
Industrial production accelerated by 2.8% on the
year in May, up from 2.4% in April due to a rise in
manufacturing output. Manufacturing expanded by
4.4% on the year in May, the highest in six months,
and up from growth of 3.9% growth in April. Mining
and quarrying, slowed to 0.9% on the year in May
compared with growth of 1.1% in the previous
month. Utilities output continued to contract for the
seventh consecutive month, although the pace of
decline slowed to 0.5% on the year from a decline of
1.9% in the previous month.
In the first five months of 2014, industrial production
grew 1.7% on the year after contracting 0.6% in the
same period a year ago. The economy ministry
Economic Growth
-15%
-10%
-5%
0%
5%
10%
15%
2007 2008 2009 2010 2011 2012 2013
GDP Growth y/y %
Source: Federal State Statistics Service of Russia
12. MNI Russia Business Report - June 201412
expects industrial output to increase by about 1% this
year after it failed to grow in 2013.
Car sales decelerate in May
In May, 201,487 cars were sold, 12.2% below the
level in the same month a year earlier, according to
the Association of European Businesses (AEB). Higher
inflation and a weaker rouble have negatively
impacted consumer spending. The pace of the decline
in car sales had eased until March when sales
declined by just 0.4%, but the market is showing
signs of distress again. The five months to May saw a
decline of 5.6% in car sales compared with the same
period a year earlier.
The AEB remains cautious about the outlook and has
forecast that car sales will decline by 1.6% in 2014,
following a drop of 5.5% in the previous year.
However, the June data will provide clues about
where the market is headed into the second half of
the year which may prompt the AEB to revise their
forecast.
Inflation surges in May
Consumer price inflation rose to 7.6% in May from
7.3% in April, the fastest rate of growth since August
2011. The cost of food products rose by 9.5% on the
year, up from 9% in the previous month. A ban on
pork imports from the European Union, due to an
outbreak of swine fever, has affected the cost of meat
products. Even after stripping out the prices of food
and fuel, core inflation accelerated to 7% from 6.5%
in the previous month, the highest since October
2011. The latest rise leaves the inflation rate even
further above the central bank’s target for a 5% for
2014.
Russia imports a large amount of consumer goods
and food items, and the depreciation of the currency
has pushed up prices in recent months, forcing the
central bank to tighten its monetary policy further at
the end of April.
Key policy rate unchanged
On June 16, the Russian central bank left its
benchmark interest rate at 7.5% as expected. The
Car Sales
-100%
-50%
0%
50%
100%
150%
2007
2008
2009
2010
2011
2012
2013
2014
Car and Light Commercial Vehicles Sales y/y %
Source: Federal State Statistics Service of Russia
Inflation and Interest Rate
CPI y/y%
7-day repo rate (RHS)*
Source: Federal State Statistics Service of Russia, *Central Bank of Russia
0%
2%
4%
6%
8%
10%
12%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2007
2008
2009
2010
2011
2012
2013
2014
13. MNI Russia Business Report - June 2014 13
bank cited continued concerns about the high rate of
inflation, and cautioned that further rate hikes were
possible if inflation remained above the target.
The central bank last hiked rates in April by 50 basis
points to 7.5% due to the greater than expected
impact of the rouble devaluation on inflation.
The recent rate hikes are yet to have an impact on
inflation and the Central Bank is open to further rate
hikes.
Depreciation in the rouble
The rouble has been one of the most volatile emerging
market currencies in 2014 due to the alarming levels
of capital flowing out of the country following Russia’s
annexation of Crimea. In June, the rouble was 4.9%
below the level seen in the same period a year ago.
However, the rouble has strengthened somewhat over
the past two months as international tensions have
eased slightly.
Foreign exchange reserves in Russia decreased to
presently stretches from 36.40 to 43.40 against the
basket, with no central bank interventions at all in a
broad range in the middle of this corridor. The move
is part of the bank’s aim to adopt inflation targeting
from the start of next year. It was forced to pause the
shift towards inflation targeting in early March in
order to halt the rouble’s decline after Russia annexed
Crimea.
Trade surplus widens in April
Russia’s trade surplus widened to $19.8 billion in
April, from $14.2 billion a year earlier and only
slightly above $19.7 billion recorded a month earlier.
Exports increased to $47.5 billion in April, 6.7%
above the same period a year ago and slightly up
from March’s $46.9 billion. Imports declined for the
fourth consecutive month to $27.6 billion, down by
8.7% on the year, although slightly up from $27.1
billion recorded in March.
$467.2 billion in May from $472.3 billion in April as
the country has tried to protect the rouble from capital
flight.
Capital outflows from Russia’s private sector stood at
$63.7 billion in Q1 2014 owing to the financial
instability. This compared with an outflow of $59.7
billion during the whole of 2013. About $7.4 billion
left Russia in May, down from $8.8 billion in the
previous month. The bank expects $90 billion in net
outflows this year, which seems to be overly optimistic.
The central bank reduced the intervention threshold
for moving the rouble’s floating corridor against a
dollar-euro basket to $1 billion from $1.5 billion. It
also reduced the amount of daily interventions by
$100 million, and widened the range in the middle of
the corridor where it carries out no interventions to
5.1 roubles from 3.1 roubles. This makes the rouble
more flexible within its floating corridor, which
14. Spitzzeile Titel14
Russian business sentiment recovered slightly in
June following a sharp decline in May to the lowest
level in five months.
Indicators
15. MNI Russia Business Report - June 2014 15
Russian business sentiment recovered slightly in June
from a five month low in May, although was still
considerably down since the start of 2014 as business
confidence has been affected by the sanctions from
the US and EU and amid a sharp slowdown in
economic growth.
The MNI Russia Business Indicator rose to 50.5 in
June from 49.2 in May, although it was 12.6% below
the level seen in June 2013. Russian business
sentiment bottomed out in the final quarter of 2013
and bounced back at the start of the current year
boosted by the Sochi Olympics. Confidence in the
three months to June was 8.8% below the level of the
previous quarter and 15.2% below the corresponding
period a year ago.
Russian business confidence has already been dented
from what have only been limited sanctions imposed
by the west. Capital outflows from Russia’s private
sector have been significant since the Ukraine crisis,
averaging $63.7 billion in Q1 2014, compared with
an outflow of $59.7 billion during the whole of 2013.
The EU has urged Russia to calm tensions in eastern
Ukraine, warning they would otherwise introduce
fresh restrictions on trade with Russia, possibly
including sector-wide sanctions.
Business confidence improved among manufacturing
and services companies, although the indicator
remained below the 50 expansion/contraction line for
the latter. Construction companies were less optimistic
about current business conditions, although the
majority reported no change compared with the
previous month.
50.5
MNI Russia Business Indicator
Picks Up Slightly in June
MNI Russia Business Indicator
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 57.8 57.9 60.0 52.5 55.6 49.2 50.5
Future Expectations 57.5 53.0 55.3 53.3 54.3 52.5 52.5
40
45
50
55
60
65
70
75
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
MNI Russia Business Indicator
Current Conditions
Future Expectations
Most companies did not expect their overall business
conditions to change much in the following three
months as the Expectations Indicator was flat at 52.5
in June. Manufacturing companies remained
pessimistic while construction and services were
optimistic about the coming three months.
16. MNI Russia Business Report - June 201416
Current conditions for Production remained broadly
stable after declining to the lowest level in two months
in May. The Production Indicator stood at 55.5 in
June compared with 55.3 in the previous month,
although it was significantly below the 60.8 outturn
seen in the same period a year ago.
There have been some limited signs of a pick-up in
the economy with industrial production growing for
the fourth consecutive month in May, by 2.8% on the
year, following growth of 2.4% in April. Much of the
rise was led by manufacturing output, which grew by
4.4% on the year, up from 3.9% on the year in April.
More manufacturing companies raised their production
levels, while in contrast, fewer services companies
reported an increase. Construction companies did not
see any change from the previous month.
Companies were less optimistic about Production in
the next three months, with the Future Expectations
Indicator falling to the lowest since March, to record
51.1 compared with 51.7 in May, significantly below
the level in the same period a year earlier.
Production
Expectations Lowest Since
March
55.5
40
45
50
55
60
65
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Production
Current Conditions
Future Expectations
Production
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 60.8 58.2 59.3 52.5 57.3 55.3 55.5
Future Expectations 58.5 50.5 52.0 50.8 52.0 51.7 51.1
17. MNI Russia Business Report - June 2014 17
Companies were more optimistic about the level of
demand for their products in June as compared with
the previous month, but their confidence was
significantly below the same period a year ago.
The New Orders Indicator increased to 56.0 in June
from 54.8 in the previous month, a gain of 2.2% on
the month. The rise was led by manufacturing and
construction companies, while for the first time in 11
months, New Orders contracted for service
companiess.
Under the growing threat of more widespread
sanctions, expectations of companies for New Orders
in three months’ time remained subdued. The
Expectations Indicator declined to 51.9 in June from
52.7 in May, the lowest since March.
New Orders
Highest Since April
56.0
40
45
50
55
60
65
70
75
80
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
New Orders
Current Conditions
Future Expectations
New Orders
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 63.3 57.6 62.5 57.5 58.8 54.8 56.0
Future Expectations 54.3 50.3 51.0 51.8 52.2 52.7 51.9
18. MNI Russia Business Report - June 201418
Companies’ Export Orders rose for the second
consecutive month, although they were still in
contraction, following a record low level in April when
tensions with the EU and US over the situation in
Ukraine were at their height.
The Export Orders Indicator rose by 4.5% on the
month to 49.0 in June from 46.9 in the previous
month. Tensions in the region have led to a clear
reduction in overseas orders with the indicator hitting
the lowest in Q2 2014 and 11.4% below the outturn
of June 2013.
There was greater optimism for export orders among
manufacturing companies, with the indicator rising
above the 50 neutral level for the first time in six
months while confidence among construction and
service companies remained flat, the latter being the
most pessimistic among the three sectors.
Companies were nervous about the future level of
Export Orders, with the indicator remaining in
contraction for the tenth consecutive month. The
Expectations Indicator rose to 44.3 in June from 43.0
in May. In spite of the gain, companies’ expectations
for Export Orders were significantly below the level
seen a year ago.
Export Orders
Hit Series Low in Q2
49.0
35
40
45
50
55
60
65
70
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Export Orders
Current Conditions
Future Expectations
Export Orders
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 55.3 50.8 57.2 48.3 44.4 46.9 49.0
Future Expectations 57.3 46.3 47.1 43.0 43.5 43.0 44.3
-60%
-40%
-20%
0%
20%
40%
60%
80%
0
10
20
30
40
50
60
2007 2008 2009 2010 2011 2012 2013 2014
Trend in Exports
Exports FOB (billion USD)
Exports y/y % (RHS)
*Source: The Central Bank of the Russian Federation
19. MNI Russia Business Report - June 2014 19
The productive capacity of Russian companies has
remained broadly stable over the past six months as
depicted by the three month trend in the Productive
Capacity Indicator. Poor consumer demand and weak
economic conditions have resulted in spare capacity
for many companies.
In June, the Productive Capacity Indicator decreased
to 50.5 from 51.5 in May, a decline of almost 2% on
the month.
The Expectations Indicator declined slightly to the 50
mark, after moving into expansion for the first time in
nine months in May.
Productive Capacity
Declines Slightly
50.5
40
45
50
55
60
65
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Productive Capacity
Current Conditions
Future Expectations
Productive Capacity
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 53.3 50.3 50.3 50.3 50.0 51.5 50.5
Future Expectations 54.0 49.7 49.7 49.7 49.7 50.3 50.0
45
50
55
60
65
70
75
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Productive Capacity and Rate of Capacity Utilisation
MNI Productive Capacity
Rate of Capacity Utilisation*
*Source: Federal State Statistics Service of Russia
20. MNI Russia Business Report - June 201420
Given the current weak demand backdrop, Order
Backlogs have contracted for four months in a row to
45.4 in June from 42.3 previously.
Manufacturing companies’ backlogs rose significantly
although failed to jump above the 50 breakeven level.
The slowdown in the economy has resulted in a
greater degree of excess capacity, which means
companies are better placed to meet any unexpected
demand.
Future Expectations for backlogs remained firmly in
contraction although increased slightly to 44.4 from
43.3 in May. Except for May last year, when the
Future Expectations Indicator was exactly 50.0,
expectations for Order Backlogs have always been in
contraction, although have trended up gradually since
October.
Order Backlogs
Continue to Contract
45.4
30
35
40
45
50
55
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Order Backlogs
Current Conditions
Future Expectations
Order Backlogs
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 45.8 51.4 52.0 47.4 39.5 42.3 45.4
Future Expectations 49.7 42.7 43.3 43.0 42.5 43.3 44.4
21. MNI Russia Business Report - June 2014 21
The Employment Indicator declined for the first time
in five months to 50.5 in June from 52.8 in the
previous month.
Firms are asked whether they have too few, too many
or just the right number of employees. A reading
below 50 indicates they have too many, while a
reading above means that they have too few, while 50
is seen as neutral.
Over the past year, companies’ hiring has decreased
in line with the economy’s downturn, as depicted by
the Employment Indicator, which was down by 4.7%
on the year in June.
The majority of construction companies had a stable
workforce in June, partially offsetting the gain seen in
the previous month.
In June, companies in our panel were less optimistic
about employment in the next three months as the
Expectations Indicator declined to 50.0 from 50.5 in
May. After hitting the lowest level in Q4 2013,
expectations picked up in 2014 and were broadly the
same in Q2 2014 compared with Q1 2014.
Employment
Lowest Since March
50.5
40
42
44
46
48
50
52
54
56
58
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Employment
Current Conditions
Future Expectations
Employment
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 53.0 48.3 50.0 50.0 50.8 52.8 50.5
Future Expectations 51.8 49.7 49.5 50.5 50.0 50.5 50.0
22. MNI Russia Business Report - June 201422
The Inventories Indicator rose sharply to 48.0 from
39.2 in the previous month, although it was the tenth
consecutive month it has been in contraction,
indicating a continued decline in stocks of finished
goods.
The current weak economic conditions, coupled with
the tensions in Ukraine, have created a highly
uncertain business environment for many companies
who have chosen to run down stocks. In Q2 2014,
the level of inventories averaged the lowest since the
start of the survey.
The rise in inventories was led by both manufacturing
and construction companies, the latter rising to the
50 expansion/contraction level for the first time in four
months.
More companies expected their inventories to rise in
three months’ time, with the Future Expectations
Indicator increasing to 46.5 in June from 43.4 in the
previous month. Companies began destocking in
September a year ago and their expectations for the
future turned negative in November and have
remained in contraction since then.
Inventories
Highest Since October
48.0
30
35
40
45
50
55
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Inventories
Current Conditions
Future Expectations
Inventories
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 50.6 38.2 44.4 40.4 32.2 39.2 48.0
Future Expectations 46.3 43.8 43.8 40.2 41.2 43.4 46.5
23. MNI Russia Business Report - June 2014 23
The Input Prices Indicator declined slightly for the
third month in a row to 50.5 in June from 51.0 in
May, the lowest since the start of the survey. The
decline was mainly led by construction companies
where the proportion of those who reported higher
input prices declined sharply.
The three month trend in Input Prices has declined
significantly since the summer of 2013 and has been
flat in recent months. It seems the rouble’s recent
decline has not translated into higher input costs to
companies yet as the majority of companies reported
they paid the same input prices as compared with the
previous month.
Companies expected input prices in the next three
months to remain the same, with the Expectations
Indicator remaining flat at 50.0. Companies were
probably hopeful that the central bank’s tight monetary
policy stance will help in curbing inflation over the
coming months.
Input Prices
Series Low
50.5
40
45
50
55
60
65
70
75
80
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Input Prices
Current Conditions
Future Expectations
Input Prices
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 63.1 54.5 51.3 52.1 51.8 51.0 50.5
Future Expectations 58.9 50.0 50.0 52.1 50.3 50.0 50.0
24. MNI Russia Business Report - June 201424
In spite of a slight decline in input prices, companies
decided to raise the prices charged for their goods and
services for the first time in five months.
The Prices Received Indicator, which measures the
prices that companies charge for their goods and
services, rose, to 51.3 in June compared with 50.0 in
May.
Consumer price inflation rose to 7.6% in May, from
7.3% in April, moving further above the central bank’s
5% goal for this year. The central bank has raised
interest rates two times this year in a bid to counter
the recent rise in inflation, and expects it to fall to
around 6% by the end of the year.
The Indicator for construction companies rose above
the breakeven level after remaining at the 50 mark for
the past six months. The Indicator for services
companies rose to the 50 level after contracting in the
previous two months.
The Future Expectations indicator declined slightly to
50.3 from 51.0 in May, although the majority of
companies reported that they expected their prices
would remain the same.
Prices Received
Highest Since March
51.3
40
45
50
55
60
65
70
75
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Prices Received
Current Conditions
Future Expectations
Prices Received
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 61.3 57.7 53.8 53.1 50.5 50.0 51.3
Future Expectations 55.8 49.4 48.7 51.3 51.3 51.0 50.3
25. MNI Russia Business Report - June 2014 25
The indicator measuring the financial health of
companies declined for the fourth consecutive month
in June to the lowest since August 2013 as Russian
companies felt the impact from the stand-off with the
west.
Since March 2013, when the survey started, the
financial position of Russian companies has been
fairly healthy in spite of the economic slowdown, with
the indicator averaging 59.9. The Financial Position
Indicator declined by 3.6% to 54.3 in June from 56.3
in May and companies’ financial heath was
significantly below the level of 64.9 seen in the same
period a year earlier.
Companies remained nervous about the future course
of events and the impact on their financial conditions.
The Indicator for Future Expectations fell to a new
record low of 52.7 in June from 53.6 in the previous
month, mainly led by lower expectations of
construction sector companies.
Financial Position
Lowest Since August 2013
54.3
40
45
50
55
60
65
70
75
80
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Financial Position
Current Conditions
Future Expectations
Financial Position
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 64.9 62.6 63.8 60.1 59.8 56.3 54.3
Future Expectations 55.4 56.9 58.4 55.6 54.4 53.6 52.7
26. MNI Russia Business Report - June 201426
The indicator for Interest Rates Paid remained flat at
49.7 in June, the third month below the 50 expansion/
contraction mark.
The effect of the rate hike in late April has seemingly
not yet been passed onto businesses, as the majority
of companies polled reported no change in their
interest costs. The central bank raised its key rate to
7.5% from 7% at the end of April and left it unchanged
at its June meeting. The central bank has raised
interest rates two times since Russia’s annexation of
Crimea led to capital flight, causing the rouble to
tumble to a record low and inflation to accelerate. The
central bank has said that further tightening is possible
should inflation continue to remain stubbornly high.
The yield on the Russian 10-year government bond
declined to 8.6% from 9.47% on June 19, while the
three month interbank rate fell to 8.95% from 9.07%
previously.
The indicators for manufacturing and construction
sector companies were exactly at the 50 neutral level,
while for services companies it remained below 50,
although the majority said they paid the same interest
rates as in the previous month.
Companies expected Interest Rates Paid over the
coming three months to remain in contraction, at
49.7, the same level as in May.
Interest Rates Paid
Remains Flat
49.7
45
47
49
51
53
55
57
59
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Interest Rates Paid
Current Conditions
Future Expectations
Interest Rates Paid
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 55.8 52.6 54.3 50.0 49.7 49.7 49.7
Future Expectations 51.9 50.0 50.0 49.4 49.4 49.7 49.7
27. MNI Russia Business Report - June 2014 27
The Effect of Rouble Exchange Rate Indicator, which
measures whether the exchange rate is helping or
hurting businesses, declined to 50.3 in June,
offsetting the gain recorded in the previous month to
53.3.
A value above 50 shows more firms reported that the
exchange rate was helping, while a reading below 50
shows the exchange rate was hurting.
The indicator hit at a series high in February before
falling sharply as the rouble depreciated amid large
capital outflows following Russia’s annexation of
Crimea.
The rouble has fallen by 7.8% against the US dollar
since a year ago and about 5% since the start of the
year and the rapid descent has raised fears of
economic instability among companies. However, as
the situation has eased, the currency has recovered
slightly over the past two months.
The indicator was at around the 50 level across the
three sectors but there was a sharp decline in the
proportion of services companies who previously
reported that the exchange rate was helping their
business.
Expectations for three months’ time remained at 50.0
for the eighth consecutive month, having stood slightly
above the breakeven level in September and October
2013.
Effect of Rouble Exchange Rate
Fewer say Exchange Rate is
Helping
50.3
45
47
49
51
53
55
57
59
61
63
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Effect of Rouble Exchange Rate
Current Conditions
Future Expectations
Effect of Rouble Exchange Rate
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 50.6 56.9 61.0 53.7 50.9 53.3 50.3
Future Expectations 48.2 50.0 50.0 50.0 50.0 50.0 50.0
20
25
30
35
40
2007 2008 2009 2010 2011 2012 2013 2014
Depreciation in the Rouble
RUB against USD
Source: The Central Bank of the Russian Federation
28. MNI Russia Business Report - June 201428
The time taken to deliver supplies to companies
shortened in June to 50.3 from 51.8 in the previous
month.
The decline in the indicator was led by manufacturing
companies as there was a sharp fall in the proportion
of companies who said supplier delivery times were
longer, although the majority said they were the same.
Expectations for three months’ time remained
unchanged in June at 49.7 for the sixth consecutive
month. Future expectations have remained broadly
stable since March last year, when the survey started,
with the series averaging 49.7, and only rising above
the breakeven level of 50 twice since then.
Supplier Delivery Times
Lowest Since April
50.3
40
42
44
46
48
50
52
54
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Supplier Delivery Times
Current Conditions
Future Expectations
Supplier Delivery Times
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 48.0 51.7 50.5 50.0 49.5 51.8 50.3
Future Expectations 49.5 49.7 49.7 49.7 49.7 49.7 49.7
29. MNI Russia Business Report - June 2014 29
Fewer companies had better access to credit in June
as compared with the previous month, as the
Availability of Credit Indicator decreased by 3.7% to
57.7 from 59.9 in the previous month, the first decline
in four months.
A lot of US and European banks have reduced their
lending to Russian businesses since the annexation of
Crimea in March. Sanctions are pushing companies to
reduce their dependence on western financial markets
while they are preparing to switch contracts to other
Asian currencies.
Manufacturing companies led the decline in the
indicator as the proportion of those who reported
better availability of credit almost halved in June as
compared with the previous month. Construction
companies were also less optimistic about the
availability of credit while it was the opposite for
service sector companies.
Businesses’ expectations about credit availability in
the next three months’ time have trended downwards
since September a year ago and they remained
broadly stable In June with the Expectations Indicator
at 50.8 as compared with 50.6 in the previous month.
Availability of Credit
Dips Slightly
57.7
40
45
50
55
60
65
70
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Availability of Credit
Current Conditions
Future Expectations
Availability of Credit
Jun-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Current Conditions 54.4 55.0 51.9 53.0 53.9 59.9 57.7
Future Expectations 52.2 50.9 50.9 50.0 51.5 50.6 50.8
32. MNI Russia Business Report - June 201432
Historical Records
2013- Current
Minimum Maximum Mean Median
MNI Russia Business Indicator
Current Conditions 45.5 62.9 55.2 56.0
Future Expectations 45.0 71.3 55.7 54.7
Production
Current Conditions 48.3 61.1 55.9 56.4
Future Expectations 45.5 58.8 53.3 52.0
New Orders
Current Conditions 48.8 73.8 58.6 58.2
Future Expectations 45.5 62.8 54.2 52.5
Export Orders
Current Conditions 44.4 61.1 51.8 50.0
Future Expectations 41.6 66.0 48.9 45.3
Productive Capacity
Current Conditions 50.0 57.7 52.0 50.9
Future Expectations 48.5 63.2 52.1 49.9
Order Backlogs
Current Conditions 39.5 52.0 46.4 46.5
Future Expectations 37.7 50.0 44.2 43.3
Employment
Current Conditions 47.7 56.5 51.6 50.9
Future Expectations 46.2 53.6 49.9 50.3
Inventories
Current Conditions 32.2 50.8 45.9 48.4
Future Expectations 37.5 51.9 45.3 46.0
Input Prices
Current Conditions 50.5 68.8 54.1 52.0
Future Expectations 50.0 67.9 54.2 51.7
Prices Received
Current Conditions 46.3 67.3 54.4 53.3
Future Expectations 48.7 55.8 52.0 51.3
Financial Position
Current Conditions 51.8 68.0 59.9 60.0
Future Expectations 52.7 68.5 58.4 57.3
Interest Rates Paid
Current Conditions 49.7 57.4 52.4 52.5
Future Expectations 49.4 54.5 50.9 50.3
Effect of Rouble Exchange Rate
Current Conditions 49.4 61.0 52.6 51.0
Future Expectations 48.2 50.7 49.8 50.0
Supplier Delivery Time
Current Conditions 45.9 51.8 49.5 50.0
Future Expectations 49.1 50.8 49.7 49.7
Availability of Credit
Current Conditions 48.1 59.9 53.9 54.2
Future Expectations 50.0 55.6 52.2 52.1
33. MNI Russia Business Report - June 2014 33
Historical Records - Quarterly
Q4 13 Q1 14 Q2 14 Quarterly Change Quarterly % Change
Current Conditions 51.1 56.8 51.8 -5.0 -8.8%
Future Expectations 47.2 53.9 53.1 -0.8 -1.5%
Production
Current Conditions 53.4 56.7 56.0 -0.7 -1.2%
Future Expectations 47.1 51.1 51.6 0.5 1.0%
New Orders
Current Conditions 53.9 59.2 56.5 -2.7 -4.6%
Future Expectations 46.9 51.0 52.3 1.3 2.5%
Export Orders
Current Conditions 50.0 52.1 46.8 -5.3 -10.2%
Future Expectations 41.8 45.5 43.6 -1.9 -4.2%
Productive Capacity
Current Conditions 51.0 50.3 50.7 0.4 0.8%
Future Expectations 49.0 49.7 50.0 0.3 0.6%
Order Backlogs
Current Conditions 48.8 50.3 42.4 -7.9 -15.7%
Future Expectations 40.9 43.0 43.4 0.4 0.9%
Employment
Current Conditions 49.3 49.4 51.4 2.0 4.0%
Future Expectations 46.5 49.9 50.2 0.3 0.6%
Inventories
Current Conditions 47.0 41.0 39.8 -1.2 -2.9%
Future Expectations 46.5 42.6 43.7 1.1 2.6%
Input Prices
Current Conditions 53.0 52.6 51.1 -1.5 -2.9%
Future Expectations 50.9 50.7 50.1 -0.6 -1.2%
Prices Received
Current Conditions 54.9 54.9 50.6 -4.3 -7.8%
Future Expectations 49.8 49.8 50.9 1.1 2.2%
Financial Position
Current Conditions 59.9 62.2 56.8 -5.4 -8.7%
Future Expectations 57.9 57.0 53.6 -3.4 -6.0%
Interest Rates Paid
Current Conditions 51.2 52.3 49.7 -2.6 -5.0%
Future Expectations 50.4 49.8 49.6 -0.2 -0.4%
Effect of Rouble Exchange Rate
Current Conditions 54.3 57.2 51.5 -5.7 -10.0%
Future Expectations 50.2 50.0 50.0 0.0 0.0%
Supplier Delivery Time
Current Conditions 49.8 50.7 50.5 -0.2 -0.4%
Future Expectations 49.4 49.7 49.7 0.0 0.0%
Availability of Credit
Current Conditions 56.9 53.3 57.2 3.9 7.3%
Future Expectations 52.2 50.6 51.0 0.4 0.8%
34. MNI Russia Business Report - June 201434
Methodology
MNI Russia Business Sentiment is a monthly poll of
Russian business executives at companies listed on
the Moscow Exchange. Companies are a mix of
manufacturing, service, construction and agricultural
firms.
Respondents are asked their opinion on whether a
particular business activity has increased, decreased
or remained the same compared with the previous
month as well as their expectations for three months
ahead, e.g. Is Production Higher/Same/Lower
compared with a month ago?
A diffusion indicator is then calculated by adding the
percentage share of positive responses to half the
percentage of those respondents reporting no change.
An indicator reading above 50 shows expansion,
below 50 indicates contraction and a result of 50
means no change.
Data is collected through computer aided telephone
interviews and around 200 companies are surveyed
each month.
35. Insight and data for better decisions
Discovering trends in Emerging
Markets
MNI’s Emerging Markets Indicators explore attitudes, perspectives and confidence
in Russia, India and China. Our data and monthly reports present an advance
picture of the economic landscape as perceived by businesses and consumers.
Our indicators allow investors, economists, analysts, and companies to identify
economic trends and make informed investment and business decisions. Our data
moves markets.
www.mni-indicators.com
