Russian Industry Has Its Most Pessimistic Investment Plan since December 2009

The initial results for September based on the market questionnaires of the Gaidar Institute are looking rather pessimistic. The trend in supply and demand has not undergone any fundamental modification, a fact which has disappointed companies and led to a lowering of expectations in demand and a growth in inventory.

On top of that, industry has continued to increase its costs, which will hardly stimulate demand. The persistent outflow of employees from companies is creating a deficit of trained personnel, even under stagnation conditions. And investment plans presage further diversion of investments in production.

The trend in demand for industrial products in September did not undergo any fundamental modification. Both the initial and seasonally adjusted data show a slight acceleration of the drop in sales, interrupting the positive (under current conditions) trend of slowing decrease in demand shown in July and August. The balance in evaluation (satisfaction) of current sales dropped in September to almost zero, after reaching a 12 month high in August. Industry remained unsatisfied with its third quarter results and apparently is continuing its search for normal sales volumes and production for ongoing conditions of stagnation.


Initial predictions of demand have steadily decreased since the beginning of the year (except for the natural exception of May of this year) (after the January increase from -19 to +28 points), and lost 30 points by September. However, the formal seasonal adjustment demonstrates its relative stability between +2... +11 points and an improvement in September to +7 points.


Product output, like demand, has not sustained any sharply positive or particularly negative changes. Initial data indicated a decrease in the minimum number of balance points, adjusted - increasing the production growth rate. As a result, the data from the third quarter display a symbolic improvement in the indicators of three points. Production plans show an unimpressive trend in 2013 and are stuck between +12...+18 balance points since the beginning of the year.


Based on questionnaire data, workers are continuing to leave industry. In September the balance (intensity) in the change in the actual number of workers in companies remained at the level of the three summer months, and was -7 points. It dropped to -13 points in May 2013, and to -26 in January. So in the months with the largest number of non-working days, industry lost the most workers, as a general rule. It can be noted that the steady loss of workers in Russian industry had already begun in June 2012, and has continued to this time. The trend in predictions would indicate that generally speaking companies do not expect any growth in employment.


For two months in a row, company investment plans have remained at the post-crisis level. Never since December 2009 have there been such pessimistic expectations in the investment area in Russian industry. Indeed, in the summer of 2011 the balance of the plans reached +26 points; now the indicator is at -14 points, and the percentage indicating their intent to lower investments in comparison with the same period in the previous year grew to 32%. This means that almost one third of industry plans to cut back their investment activity at the end of the year, while the government is hoping for a sharp increase in investment in 2013.


There is nothing unexpected in an investment policy like this on the part of Russian industry. Based on the monitoring data of the Institute of Economic Affairs, the necessity of cutting back investment as a crisis preparation method is being acknowledged by a growing number of companies. If 20% of businesses had cut back on investment programs in their plans in 2012, it was 24% at the beginning of 2013, and by August 2013 it was considered a viable move by 26% of businesses. The only items that rated higher by Russian industry as methods for dealing with the crisis were lowering costs and expenses and minimizing inventories of finished goods.


S.V. Tsukhlo - PhD, economics, manager of market research workshops