Enterprises feel compelled to lower prices in hopes of demand revival

As demonstrated by the business opinion surveys carried out by the Gaidar Institute, October saw no significant changes either in the movement of the demand index, or in the level of output in Russian industry.

This gave rise to an increasing dissatisfaction with the current volumes of sales, and enterprises once again felt obliged to bring down their prices in a hope to revive demand.

October turned out to be yet another month marked by a sluggish behavior of the main economic indices. As before, towards the year's end demand is displaying a progressive slowdown, which is somewhat neutralized when the demand index is cleared of seasonality by applying the relevant formal methods. As a result, the rate of the downward movement in sales has remained practically the same for a third month in a row. However, this index on the whole is slightly better that it was a year ago. Nevertheless, industry seems reluctant to put up any longer with the absence of positive changes in the movement of demand. After three previous months marked by prevalence of responses ‘normal' with regard to current demand estimates, the proportion of responses ‘below the norm' in October increased by 2 percent points. In August, their ratio was reverse, and the difference was as high as 9 points.

Producers' forecasts of demand, similarly to its actual movement, are worsening as the year end approaches. In October, the balance of estimates (interpreted as the rate of changes displayed by that index) of initial forecasts dropped to -12 points, whereas at the year's beginning it had been at the level of +28 points. This index has been on the decline throughout the year 2013, with the exception of the month of May, when it displayed a one-time surge by 7 points. Over the first 10 months of last year, the optimism index for the demand outlook had amounted to 33 points, while the result for October had been the same. When cleared of seasonality, all the forecasts for 2013 have been fitted into the rather narrow interval fr om +1 to +8 points, with constant fluctuations in between.


In October, the estimates of stocks of finished products in industry demonstrated a remarkable stability of the proportion of responses ‘above the norm' at its continually recorded level of 21%, wh ere it settled after its upsurge in July, when it had hit its four-year high. So, alterations in the balance of estimates were determined by fluctuations of the proportion of responses ‘below the norm' in the interval between 9 and 12 percents. Traditionally since early 2000, responses ‘normal' have prevailed, and over the last few months their proportion has also remained in the interval between 64 and 66% (Fig. 2). Thus, since the onset of Q3 2013, industry has demonstrated that it can control its stocks of finished products pretty well, without any dramatic changes in their volume or any radical revision of the notions as to their normal level. The leaders in this respect are ferrous metallurgy (88% of ‘normal' responses), the chemical industry (76%), and non-ferrous metallurgy (74%).


Output, when cleared of seasonality, continues to display a stable though very slow upward movement (Fig. 3). Its balance (rate of growth) for a fifth month in a row has stayed in the interval between +3 and +6 points. Such results are better than those recorded early in 2013 and over the same period of 2012. But the initial data demonstrate that output growth is once again close to zero, as it was in July and April. Since the beginning of 2013, the initial plans with regard to output, similarly to the forecasts of demand, have been demonstrating a stably negative trend, with the exception of May when the estimates improved by 9 points. However, the resulting decline in optimism over the first 10 months of 2013 amounts to 32 points: from +36 points in January to +4 points in October.


The growth rate of producer selling prices in October dropped to a virtual standstill. The negative growth rate of demand, very slack upward movement of output and very weak hopes for their revival once again suppress any optimism in the current approaches to pricing policies in industry. The rate of actual growth displayed by producer prices over that month dropped from +5 to -3 points. And the price forecasts of enterprises lost 7 points, and thus dropped to their four-year low. The outlook for producer prices in industry has never been bleaker since mid-2009.

At the same time, in 2013 the readiness for an anti-crisis pricing policy, as shown by the results of the three-year monitoring period, has risen to its record high. In an event of a ‘crisis' downfall of demand, 36% of enterprises are now prepared to further lower their producer prices; previously, only 27% expressed such an intention.


S. V. Tsukhlo - Candidate of Economic Sciences, Head of Business Surveys Department