Industrial Patience Has Run Out

According to the data released by the Rosstat, contraction of Russian industrial output in terms of year on year has speeded up from 0.4% in Q1 2015 to 4.9% in Q2 2015. Accelerated contraction was mainly due to the sectors which produce capital goods (mechanical engineering and construction materials) as well as long-term consumer goods.

Business surveys conducted by the IEP also demonstrated that enterprises estimates of demand for their products turned out to be the worst from mid-2009 and there was no traditional output increase in June 2015 following May holidays.

In June 2015, industrial managers finally felt the cold breath of the crisis engulfing the Russian industry. Nevertheless, this is true to actual demand dynamics (which is part of sentiment index) and actual output dynamics (outside of index). Negative changes of these two indices resulted in increased dissonance of the current sales volume. However, other index components have not demonstrated crisis changes.

As a result, this consolidated indicator turned to be negative but has not reached its lowest intercrisis levels. Index of industrial forecast has remained in the 'green' down solely a few points in June. A growing number of enterprises estimate actual sales dynamics as a 'contraction' even after preceding protracted stagnation which most likely made the industry to asses demand dynamics not so strictly and far from each of its reduction to asses as a 'contraction.'

In addition, minor upward developments, on the contrary, to asses as 'growth.' However, at present, it seems that the industry has lost its patience. In June 2015, the balance of replies (rate of demand growth) after seasonal adjustment turned out to be six-year low (since mid-2009).

In this context, enterprises adequately reacted by the dynamics of their output. The balance of output also sharply deteriorated for June and after seasonal adjustment demonstrated contraction against May level by 8 points.

Enterprises' sentiment regarding current demand volume went down. When during the first months 2015, the industry estimated this index as 'normal' in June more responses were 'below norm.' However, insignificantly: in 2013-2014, correlation of these estimates was worse. Enterprises do not express fears regarding current estimates of finished stock. June balance ('above norm' 'below norm') even improved and steadily remains around zero under overwhelming number of responses 'normal'. Over last three months, output plans preserve unusually high optimism. Industry, it seems, can not believe in the crisis.

Only demand forecasts went down in June by 4 point, but have not dropped to the lowest intercrisis levels obtained in early 2015 when expectations of the crisis were widespread in the economy

Sergey Tsukhlo, Head of the Business Surveys Laboratory