Russia’s industrial production has deteriorated the most over the last three years

The composite indicator of a business survey of managers of Russian enterprises shows that early in 2013 the Russian industry deteriorated the most over the last three years.

The Russian industry reached the ceiling of its post-crisis development as early as 2010, and began to deteriorate since then. This is obvious for both the government and economic experts. 

Low demand for products is the key problem which constraints industrial production. Furthermore, the effect of this factor has steadily been increasing since 2011 to reach its maximum over the last three years. The industry is trying to stimulate the demand for its products by lowering prices, which seems to not be working any more.

Lower interest rate on loans for the real sector can hardly help, because only a few enterprises consider the lack of loans as an obstacle to their output growth. Such an assessment has been remaining for many years.

The lack of human resources is another constraining factor of the development. Based on the questionnaire held on December 2012, only 29% of enterprises fired their employees, whereas employees quit voluntarily at 62% of enterprises. Therefore, enterprises are found to be ill-prepared for a long-awaiting economic growth, which is unlikely to happen in the short-term period. The latter temporarily reduces the human resource deficit in the production industry. 

That is not to say that enterprises are facing capital issues: about one third of the industry has excess capacity, capacity utilization may be increased by 20 p.p., the lack of working capital reached all-time lows, only 5% of enterprises (like in the pre-crisis year of 2007) are facing the problem of availability of loans. 

Tsukhlo S.V. – Ph.D. in Economics, Head of Business Surveys Department