SERGEY TSUKHLO: “INDUSTRIAL DEMAND SHOWS DECLINE IN MAY"
The "Kommersant” continues its series of publications on the state of Russian industry, citing the findings of a study by Sergei Tsukhlo, Head of Business Surveys Laboratory of the Gaidar Institute.
As Kommersant anticipated, rebound in industrial activity in April after the dip in March was a one-off. In May, initial company survey data from the Gaidar Institute indicated that the sector has stabilized thanks only to output forecasts, while demand began shrinking. In this regard, companies moved to a marked slowdown in wholesale price growth, as confirmed by latest data from the Bank of Russia.
Industrial data from the Gaidar Institute (IEP) on May 19 recorded stabilizing trends in the industrial optimism Index. April's rebound in economic activity in the sector was just a statistical outlier - 3 out of 4 indicators comprising the IEP index started declining in May (see chart). Only output plans were on the rise. "Festive May is a difficult month both for businesses and statistical observation of Russian industry," says Sergey Tsukhlo, Head of Business Surveys Laboratory of the Gaidar Institute, adding that "the prolonged military actions and freezing of the negotiation process, as well as "the continuing efforts of 'our Western partners' to destabilize the Russian economy," complicate the assessment of the situation.
The largest decline in May was in actual dynamics of demand, it was even a few points worse than in March (although both March and May 2022 were still better than levels of spring 2020 and autumn 2008).
Following the decline in demand, the output also showed a negative trend, which after a slight increase in April also became worse compared to March (the indicator is not included in the index, as it poorly describes the state of affairs in the sector), however, it "still does not reach the crisis failures of 2020, 2008 and the 90s", noted the Gaidar Institute experts. In this respect, the proportion of normal sales estimates even rose to 62% in May after April's 59%. Demand estimates, on the other hand (their gap to actuals remains the highest since mid-2021), declined slightly in May and forecasts showed no improvement after a noticeable recovery in April. "This proves the desire of enterprises to continue replenishing finished product inventories as long as external supplies and prices for components allow them to support domestic production," Sergey Tsukhlo believes. However, estimates of stocks of finished products do not stimulate production at the expense of reducing their deficit. “It is still there, but it has become extremely small. Given the characteristics of the current ("sanctions") crisis, this can be considered even an advantage," explained the author of the study.
Industrial data from the Gaidar Institute (IEP) on May 19 recorded stabilizing trends in the industrial optimism Index. April's rebound in economic activity in the sector was just a statistical outlier - 3 out of 4 indicators comprising the IEP index started declining in May (see chart). Only output plans were on the rise. "Festive May is a difficult month both for businesses and statistical observation of Russian industry," says Sergey Tsukhlo, Head of Business Surveys Laboratory of the Gaidar Institute, adding that "the prolonged military actions and freezing of the negotiation process, as well as "the continuing efforts of 'our Western partners' to destabilize the Russian economy," complicate the assessment of the situation.
The largest decline in May was in actual dynamics of demand, it was even a few points worse than in March (although both March and May 2022 were still better than levels of spring 2020 and autumn 2008).
Following the decline in demand, the output also showed a negative trend, which after a slight increase in April also became worse compared to March (the indicator is not included in the index, as it poorly describes the state of affairs in the sector), however, it "still does not reach the crisis failures of 2020, 2008 and the 90s", noted the Gaidar Institute experts. In this respect, the proportion of normal sales estimates even rose to 62% in May after April's 59%. Demand estimates, on the other hand (their gap to actuals remains the highest since mid-2021), declined slightly in May and forecasts showed no improvement after a noticeable recovery in April. "This proves the desire of enterprises to continue replenishing finished product inventories as long as external supplies and prices for components allow them to support domestic production," Sergey Tsukhlo believes. However, estimates of stocks of finished products do not stimulate production at the expense of reducing their deficit. “It is still there, but it has become extremely small. Given the characteristics of the current ("sanctions") crisis, this can be considered even an advantage," explained the author of the study.