MNI Russia Business Report 2014-04

MNI Russia Business Report April 2014

Insight and data for better decisions

MNI Russia Business Report - April 20142

About MNI Indicators Insight and data for better decisions

MNI Indicators offers unique macro-economic data and insight to businesses and the investment community. We produce data and intelligence that is unbiased, pertinent and responsive. Our data moves markets.

MNI Indicators specialises in business and consumer focused macro-economic reports that give our customers the ability to make timely and relevant decisions. We strive to provide up-to-date information on business and consumer confidence on the economy.

MNI Indicators publishes data on a monthly basis. Our indicators are based on a unique and proprietary methodology and are designed to present an advance picture of the economic landscape as perceived by businesses and consumers every month.

Our monthly reports explore attitudes, perspectives and confidence across different countries and regions. They deliver in-depth analysis, highlight changing patterns and how these can affect potential developments in business and consumer activities.

MNI Indicators is part of MNI, a leading provider of news and intelligence. MNI is a wholly owned subsidiary of Deutsche Börse Group, one of the largest worldwide exchange organisations.

Written and researched byPhilip Uglow, Chief EconomistShaily Mittal, Economist

MNI Indicators | Deutsche Börse Group Westferry House11 Westferry CircusLondon E14 4HETel: +44 (0)20 7862 7444Email: [email protected]

[email protected]@MNIIndicators

Copyright© 2014 MNI Indicators | Deutsche Börse Group. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved.

Release TimeEmbargoed until 9:45 a.m. Moscow timeApril 28, 2014

MNI Russia Business Report - April 2014 3

MNI Russia Business Report - April 2014Contents

4 Editorial

6 Executive Summary

10 Economic Landscape

14 Indicators

15 MNI Russia Business Indicator

16 Production

17 New Orders

18 Export Orders

19 Productive Capacity

20 Order Backlogs

21 Employment

22 Inventories

23 Input Prices

24 Prices Received

25 Financial Position

26 Interest Rates Paid

27 Effect of Rouble Exchange Rate

28 Supplier Delivery Times

29 Availability of Credit

30 Data Tables

34 Methodology

Spitzzeile Titel4

President Putin couldn’t have picked a worse time for a war with the west. With the economy already flat on its back there is a now a good chance the Russian economy will fall into recession.

Going it alone


President Putin couldn’t have picked a worse time for a war with the west. With the economy already flat on its back there is a now a good chance the Russian economy will fall into recession.

Some have seen the recent crisis as an opportunity for Russia to make a dramatic change to its economic model, including Russia’s Prime Minister, Dmitry Medvedev. Russia’s reliance on revenues from natural resources has helped boost consumption at the expense of investment.

With the threat of harsher sanctions Russia could, so the theory goes, invest more domestically to help insulate itself from the rest of the world. I have some sympathy with this view, in the sense that over the medium term, it will increase the political will to change the growth model.

But while a change to the growth model is badly needed, a more isolationist policy is not the way to go. And it’s not easy for Russia to go it alone either.

Russia is part of the global economy and sanctions could seriously hurt them if the west decided to flex their muscles more. Russia had $732 billion in foreign debt according to the World Bank at the start of 2014 with most of that owed by corporates or banks. A ratcheting up of sanctions would have severe consequences for the economy. Already capital is flowing out of the country at an astonishing rate.

Our own business survey this month showed the overall MNI Business Indicator rising slightly in April, albeit down from the level seen in February. But some of the underlying data tells a more worrying story. Export Orders hit the lowest since the series began in March 2013, a clear sign that the Ukraine crisis is having an impact.

Russian officials in recent weeks have struck a slightly more conciliatory tone and said that the recent Geneva agreement would be implemented. Possibly there is a growing realisation that while Russia’s military might is easily mobilised, its economy is not what it once was.

Philip UglowChief EconomistMNI Indicators

Spitzzeile Titel6

Russian business sentiment improved in April after declining sharply in March to the lowest level in three months, amid growing concerns about the economic impact of Russia’s military intervention in Crimea.

Executive Summary


Russian business sentiment improved in April after declining sharply in March to the lowest level in three months, amid growing concerns about the economic impact of Russia’s military intervention in Crimea. The MNI Russia Business Indicator rose to 55.6 in April from 52.5 in March, although was well below the 62.9 outturn seen in April 2013. The rise in the indicator suggests that Russian businesses have not yet felt any major impact from limited sanctions which have been imposed by the US and the EU.

There was a slight increase in the proportion of companies who thought business conditions would improve in the next three months. The Expectations Indicator rose marginally to 54.3 in April from 53.3 in the previous month.

Current conditions for Production improved after declining signifi cantly in March to the lowest level since December. The Production Indicator rose to 57.3 in April from 52.5 in the previous month, but was below the 58.2 outturn seen at the start of the year.

There have been some limited signs of a pick-up in the economy with industrial production growing for the second consecutive month in March, by 1.4% on the year following growth of 2.1% in February.

The New Orders Indicator increased in April, although the rise was unable to offset the sharp fall in the previous month that left New Orders at the lowest level since December.

Under the growing threat of more widespread sanctions, expectations of companies for New Orders in three months‘ time remained low and were 16.5% below the same period a year ago. The Expectations Indicator remained broadly stable in April at 52.2 compared with 51.8 in the previous month.

Over the past year, companies’ hiring has reduced considerably with the Employment Indicator down by 9.3%.

The Inventories Indicator declined signifi cantly by 20.3% in April to 32.2 from 40.4 in the previous month. The continued slowdown in inventories of fi nished items is probably due to the uncertainty regarding further sanctions on Russian businesses and it seems that companies are meeting demand requirements more by running down their stocks.

The Prices Received Indicator, which measures prices that companies charge for their goods and services, declined to 50.5 in April from 53.1 in March. After remaining in contraction for three months, the Future Expectations indicator moved above the breakeven level in the previous month and it remained fl at at 53.1 in April. This was the fi rst time since August 2013 that the prices charged by panellists were lower than their future expectations possibly indicating some future infl ationary pressure still.

The Effect of Rouble Exchange Rate Indicator, which measures whether the exchange rate is helping or hurting businesses, declined for the second month in a row to 50.9 from 53.7 in March, signifi cantly below the record high level of 61.0 recorded in February.

The time taken to deliver supplies to companies contracted in April. The Indicator for Supplier Delivery Times fell below the breakeven level to 49.5 from 50.0 in the previous month. This was the fi rst time the indicator has slipped below the 50 level this year, possibly refl ecting the reduced order book especially for exports, leading to a shorter time taken by suppliers to deliver.

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Mar-13 Jun-13 Sep-13 Dec-13 Mar-14

MNI Russia Business Indicator

Current Conditions

Future Expectations


Overview

Feb-14 Mar-14 Apr-14Highest

Since Lowest

Since3-Month Average

Monthly Change

Monthly % Change


Current Conditions 60.0 52.5 55.6 Feb-14 - 56.0 3.1 5.9%

Future Expectations 55.3 53.3 54.3 Feb-14 - 54.3 1.0 1.9%

Production



New Orders


Future Expectations 51.0 51.8 52.2 Sep-13 - 51.7 0.4 0.8%

Export Orders

Current Conditions 57.2 48.3 44.4 - series low 50.0 -3.9 -8.1%


Productive Capacity


Future Expectations 49.7 49.7 49.7 Mar-14 - 49.7 0.0 0.0%

Order Backlogs


Future Expectations 43.3 43.0 42.5 - Dec-13 42.9 -0.5 -1.2%

Employment

Current Conditions 50.0 50.0 50.8 Oct-13 - 50.3 0.8 1.6%

Future Expectations 49.5 50.5 50.0 - Feb-14 50.0 -0.5 -1.0%

Inventories



Input Prices

Current Conditions 51.3 52.1 51.8 - Feb-14 51.7 -0.3 -0.6%

Future Expectations 50.0 52.1 50.3 - Feb-14 50.8 -1.8 -3.5%

Prices Received

Current Conditions 53.8 53.1 50.5 - Apr-13 52.5 -2.6 -4.9%


Financial Position

Current Conditions 63.8 60.1 59.8 - Dec-13 61.2 -0.3 -0.5%

Future Expectations 58.4 55.6 54.4 - series low 56.1 -1.2 -2.2%

Interest Rates Paid



Effect of Rouble ExchangeRate

Current Conditions 61.0 53.7 50.9 - Aug-13 55.2 -2.8 -5.2%


Supplier Delivery Times

Current Conditions 50.5 50.0 49.5 - Aug-13 50.0 -0.5 -1.0%


Availability of Credit

Current Conditions 51.9 53.0 53.9 Jan-14 - 52.9 0.9 1.7%

Future Expectations 50.9 50.0 51.5 Nov-13 - 50.8 1.5 3.0%

The turmoil in Ukraine has thrown Russia into economic turmoil.

Russia’s economic growth contracted in the first quarter and amid sanctions from the US and EU, growth for the full year has been revised down to just 0.5%.

Spitzzeile Titel10

Russian ministers had predicted GDP growth of 2.5% this year before the Ukrainian turmoil. However, this has been dramatically reduced to just 0.5%, following a paltry 1.3% growth in 2013.

Economic Landscape


The turmoil in Ukraine has thrown Russia into economic turmoil. Russia’s economic growth contracted in the first quarter and amid sanctions from the US and EU, growth for the full year has been revised down to just 0.5%. The central bank of Russia does not intend to loosen its monetary policy any time soon as it struggles to contain inflation and stabilise the rouble.

On a more positive note, manufacturing output posted the highest growth in four months and the decline in car sales eased. The rouble has gained slightly from the previous month, but is still down by 10% against the US Dollar since the start of the year. With the tensions in Ukraine showing few signs of abating, there are clear risks that the crisis could escalate further which could result in further pain for Russia’s economy.

Low economic growthFollowing meagre growth in 2013, growth has remained extremely weak at the beginning of 2014. Economic Development Minister Alexei Ulyukayev recently announced that GDP fell 0.5% in the first quarter of 2014 as compared with the last quarter of 2013, and was up just 0.8% compared with the same period a year ago. He attributed low growth to the contraction in capital investment which fell by 4.8% in the first quarter compared with a year earlier. Consumption remained relatively firm, but it reflected a one-off public sector pay increase and so is unlikely to be sustained.

Russian ministers had predicted GDP growth of 2.5% this year before the Ukrainian turmoil. However, this has been dramatically reduced to just 0.5%, following a paltry 1.3% growth in 2013.

Earlier in the month, Central Bank governor Elvira Nabiullina also revised the growth rates for 2014 to below 1% from 1.5-1.8% previously.

Industrial production expansion slows in MarchIndustrial production grew by 1.4% on the year in March, down from 2.1% in February due to a fall in utilities output of 6.6%. Manufacturing output, though, accelerated a little to 3.5% in March from 3.4% in February.

Mining and quarrying output rose by 0.6% compared with growth of 0.8% in February.

The economy ministry expects industrial output to increase by 1.3% this year after it showed no growth in 2013.

Economic Growth

-15%

-10%

-5%

0%

5%

10%

15%

2007 2008 2009 2010 2011 2012 2013

GDP Growth y/y %

Source: Federal State Statistics Service of Russia


Car sales broadly stableIn March, 243,335 cars were sold, little changed from the same month a year earlier, according to the Association of European Businesses (AEB). Signs are that the car industry may have bottomed out as the pace of the decline has eased in recent months. The three months to March saw a decline of 2.3% in car sales compared with the same period a year earlier. Russia is the second largest market for cars in Europe and last year saw the first annual fall in sales in 2013 in four years.

The AEB remains cautious about the outlook and has forecasted that the car sales will decline by 1.6% in 2014 following a drop of 5.5% in the previous year. The government offered cheap credit on cars to propel the car industry in the second half of 2013, barring which car sales would have been even worse. The Ministry of Economy recently announced plans not to renew subsidies for car loans which could impact negatively.

A major blow to the Russian Automotive Industry was experienced earlier this month with Ford announcing a stoppage to certain operations in the country and the loss of 700 jobs at its St Petersburg plant.

Higher inflation in MarchConsumer price inflation rose sharply to 6.9% in March from 6.2% in February. Food prices rose by 8.4% on the year, compared with 6.9% in the previous month. Core inflation accelerated to 6% from 5.6% in the previous month.

The recent fall in the rouble has made the central bank’s job far more difficult. Russia imports a large amount of consumer goods and the depreciation of the currency will push up prices over the coming months.

Inflation

CPI Growth y/y %


The central bank is targeting an inflation rate of 5% this year, with a margin of 1.5%. The central bank Governor has said that it will not lower borrowing costs until at least June as inflationary risks remain high and expects any stabilisation in inflation only in the second half of 2014. She added that risk of inflation exceeding the target level of 5% remains high.

High key policy rate The central bank raised its key rate – the one-week repo rate at which it lends money to financial institutions – to 7% from 5.5% at a surprise meeting on March 3 aimed at limiting inflationary

Car Sales

-100%

-50%

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150%

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2011

2012

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2014

Car and Light Commercial Vehicles y/y%


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16%

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2013


risks that stemmed from the rouble weakening to an all-time low.

The central bank left all interest rates unchanged at its scheduled meeting on March 14 and said it will maintain a tight monetary policy stance well into the foreseeable future. While the cental bank framed the surprise tighening in policy as a move to offset the inflationary impact of the weaker rouble, a key aim was to try and avert a damaging run on the currency. The bank has made it clear that its top priority is to limit the inflationary consequences of the exchange rate and to support financial stability. Low inflation would make borrowing more affordable and lead to a road of longer-term investment, which in turn would support economic growth. Despite the economic slowdown, central bank governor Elvira Nabiullina said the bank did not plan to cut its key lending rate from 7% until its June meeting at the earliest.

Depreciation in the roubleSo far this year, the rouble has been one of the worst

financial instability. This compares with an outflow of $59.7 billion during the whole of 2013. Recently, the Russian Economic Development Ministry increased its estimate of capital flight to $100 billion from a previous estimate of $25 billion in 2014.

Trade surplus narrows in FebruaryRussia‘s trade surplus narrowed to $12.4 billion in February, from $18.9 billion a month earlier and from $15.3 billion in the same month last year, as imports fell by the most since 2009 due to the sharp depreciation of the rouble.

Exports declined for the first time in four months, to $36.5 billion in February, 12.7% below the same period a year ago. Imports stood at $24.2 billion, down by 9.4% on the year.

performing emerging market currencies. It is down by 10% against the US Dollar since the start of the year, due to Russia’s actions in Ukraine and fears of an escalation in the situation. However, the rouble has appreciated by 1.4% over the past month.

Even before tensions intensified in Ukraine, the rouble had been weakening as the Central Bank’s move to a fully free floating currency meant reduced currency intervention. The Central Bank was forced to pause its shift towards inflation targeting in early March to halt the rouble’s decline after Russia annexed Crimea.

Russia has a healthy $486 billion in international currency reserves, but that is down from $493 billion in March and $522 billion in October 2013 as the country has tried to protect the rouble from capital flight.

Capital outflow from Russia’s private sector stood at $63.7 billion in the first quarter of 2014 owing to the

Spitzzeile Titel14

The MNI Russia Business Indicator rose to 55.6 in April from 52.5 in March, although was well below the 62.9 outturn seen in April 2013.

Indicators


Russian business sentiment improved in April after declining sharply in March to the lowest level in three months, amid growing concerns about the economic impact of Russia’s military intervention in Crimea. The MNI Russia Business Indicator rose to 55.6 in April from 52.5 in March, although was well below the 62.9 outturn seen in April 2013. The rise in the indicator suggests that Russian businesses have not yet felt any major impact from limited sanctions which have been imposed by the US and the EU.

While the Business Indicator increased, 10 out of the 15 current conditions indicators declined between March and April, and five hit a series low.

Business confidence remained broadly stable among service sector companies while it improved among manufacturing and construction companies. There was a slight increase in the proportion of companies who thought business conditions would improve in the next three months. The Expectations Indicator rose marginally to 54.3 in April from 53.3 in the previous month. Expectations among manufacturing companies increased the most while it fell among service companies. Construction companies remained the most optimistic about overall business conditions in the coming months.

In April, four out of the 15 future expectations indicators fell while five remained unchanged from March.

55.6MNI Russia Business Indicator Recovers Slightly


Apr-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14

Current Conditions 62.9 51.5 45.5 57.9 60.0 52.5 55.6

Future Expectations 64.1 45.0 49.5 53.0 55.3 53.3 54.3

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Current Conditions

Future Expectations


Current conditions for Production improved after declining significantly in March to the lowest level since December. The Production Indicator rose to 57.3 in April from 52.5 in the previous month, but was below the 58.2 outturn seen at the start of the year.

There have been some limited signs of a pick-up in the economy with industrial production growing for the second consecutive month in March, by 1.4% on the year following growth of 2.1% in February.

There was a significant increase in the proportion of construction companies who reported higher Production levels. The Production Indicator also increased for manufacturing and service companies, but by a smaller degree.

Companies’ optimism for the next three months picked up slightly with the Future Expectations Indicator increasing to 52.0 from 50.8 in the previous month, although it was well below the same period a year earlier.

Expectations about Production levels in the next three months remained broadly stable for manufacturing and construction sector companies while they improved significantly for service sector companies as the indicator climbed above the 50 breakeven level.

Production Rises in April

57.3

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Production

Current Conditions

Future Expectations

Production





The New Orders Indicator increased in April, although the rise was unable to offset the sharp fall in the previous month that left New Orders at the lowest level since December.

The New Orders Indicator recovered slightly to 58.8 from 57.5 in March, although it remained well below the outturn of 62.1 seen in April a year ago. The rise in New Orders was mainly led by construction and manufacturing sector companies while more services companies reported lower orders in April.

Under the growing threat of more widespread sanctions, expectations of companies for New Orders in three months‘ time remained low and were 16.5% below the same period a year ago. The Expectations Indicator remained broadly stable in April at 52.2 compared with 51.8 in the previous month.

Construction companies’ expectations were broadly stable compared with the previous month while manufacturers reported a decline. Service sector companies were the least optimistic about future New Orders but were the only sector to report an improvement from the previous month.

New Orders Small Increase

58.8

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New Orders

Current Conditions

Future Expectations

New Orders





The Export Orders Indicator declined markedly in March and it fell further in April to a record low in the wake of Russia’s military action in Crimea and increased tensions in Ukraine.

The Export Orders Indicator fell by 8.1% on the month to 44.4 from 48.3 in March. Tensions in the region have led to a clear reduction in overseas orders with the indicator down by 26.6% from the same period a year ago.

All three sectors reported a sharp decline in Export Orders with the indicator below the 50 mark in each of them.

Future Expectations for Export Orders remained in contraction for the eighth consecutive month as there are few signs of a resolution to the situation in Ukraine. The Expectations Indicator remained broadly stable at 43.5 in April compared with 43.0 in March.

Export Orders Hit a Record Low

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Export Orders

Current Conditions

Future Expectations

Export Orders




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2007 2008 2009 2010 2011 2012 2013

Trend in Exports

Exports FOB (billion USD)

Exports y/y % (RHS)

Source: The Central Bank of the Russian Federation


The Productive Capacity Indicator was broadly stable at 50.0 in April compared with 50.3 in the previous month.

Productive Capacity has been stable since June 2013, hovering very close to 51, although capacity is considerably down from the outturn of 57.7 seen in April 2013.

The Expectations Indicator remained flat at 49.7 for the fifth consecutive month in April. The indicator has trended downwards since the series started in March 2013, and has been in contraction since August last year.

Productive Capacity Remains Stable

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Productive Capacity

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Future Expectations

Productive Capacity




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-13

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Productive Capacity and Rate of Capacity Utilisation

MNI Productive Capacity

Rate of Capacity Utilisation*

*Source: Federal State Statistics Service of Russia


Order Backlogs declined to a record low in April, having fallen into contraction in March.

The Order Backlogs Indicator decreased by 16.7% to 39.5 from 47.4 in March and was well below the outturn seen in the same month a year ago.

The decline was led by manufacturing and service companies, where the Order Backlogs Indicator fell to the lowest in nine months. Backlogs were unchanged for construction companies and remained in contraction. The slowdown in the economy has resulted in a greater degree of excess capacity that means companies are better placed to meet any new demand swiftly.

Future Expectations for backlogs remained firmly in contraction and declined slightly to 42.5 from 43.0 in March. Except for May last year, when the Future Expectations Indicator was exactly 50, expectations for Order Backlogs have always been in contraction, although have trended up gradually since October.

Order Backlogs Sink to record low

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Order Backlogs

Current Conditions

Future Expectations

Order Backlogs





The majority of the companies continued to report that the number of employees they had was just right, although the Employment Indicator increased slightly to 50.8 after remaining broadly stable at 50 in March.

Companies are asked whether the number of employees they have is not enough, just right or too many, compared with the previous month.

Over the past year, companies’ hiring has reduced considerably with the Employment Indicator down by 9.3%.

The Employment Indicator for construction companies in April increased above the breakeven 50 level for the first time in six months while it rose slightly for manufacturing firms. For service sector companies, employment conditions remained flat, just above the 50 mark.

The car maker Ford announced job cuts and halted certain operations at two of its plants following the slowdown in the Russian auto market over the past year. The company has been further hit by the declining value of the rouble and recent turmoil due the Ukraine situation. Companies in our panel were slightly less optimistic about employment in the next three months as the Expectations Indicator fell to 50.0 from 50.5 in March, the lowest since February.

Employment Highest Since October 2013

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Employment

Current Conditions

Future Expectations

Employment





The Inventories Indicator declined significantly by 20.3% in April to 32.2 from 40.4 in the previous month.

The continued slowdown in inventories of finished items is probably due to the uncertainty regarding further sanctions on Russian businesses and it seems that companies are meeting demand requirements more by running down their stocks.

The decline in inventories was led by manufacturing and construction companies, and the latter experienced a much sharper fall.

Companies expected to raise their inventories slightly in three months’ time with the Future Expectations Indicator increasing to 41.2 in April from 40.2 in the previous month. Companies began destocking in September last year and their expectations for the future turned negative in November and have remained in contraction since then.

Inventories Hits a Series Low

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Inventories

Current Conditions

Future Expectations

Inventories





The Input Prices Indicator remained broadly stable in April at 51.8 compared with 52.1 in March, and still below the series average of 54.6.

The three month trend in Input Prices has declined significantly since the summer of 2013 and has been flat in recent months.

The small decline in Input Prices was led by manufacturing and service sector companies. There was large jump in the proportion of construction companies who reported an increase in Input Prices after remaining broadly stable at the 50 mark for the previous five months.

Companies expected input prices in the next three months to fall, as the indicator declined to 50.3 from 52.1 in the previous month. The indicator for all three sectors was around the breakeven level, although there was a sharp reduction in the proportion of construction companies who expected future input prices to rise.

Input Prices Broadly Stable

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Input Prices

Current Conditions

Future Expectations

Input Prices





The Prices Received Indicator, which measures prices that companies charge for their goods and services, declined to 50.5 in April from 53.1 in March.

There was a drop in the proportion of manufacturing and service companies who charged higher prices as compared with the previous month. The Prices Received Indicator for construction companies remained stable at the breakeven level for the sixth month in a row.

After remaining in contraction for three months, the Future Expectations indicator moved above the breakeven level in the previous month and it remained flat at 53.1 in April as the majority of the companies expected the prices they charge to remain the same.

This was the first time since August 2013 that the prices charged by panellists were lower than their future expectations possibly indicating some future inflationary pressure still.

Official data showed that consumer price inflation rose sharply to 6.9% in March from 6.2% in February. The central bank is targeting an inflation rate of 5% this year, within a margin of 1.5%. However, the recent fall in the rouble is likely to push up inflation making the job of hitting the target more difficult.

Prices ReceivedLowest Since April 2013

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Prices Received

Current Conditions

Future Expectations

Prices Received





The indicator measuring the Financial Position of companies declined in April to the lowest since December 2013, led mainly by a deterioration among service sector companies.

The Financial Position Indicator declined slightly to 59.8 from 60.1 in March. In spite of the economy’s slowdown, the financial position of Russian companies has remained fairly healthy with the indicator averaging 60.8 from March 2013 when the survey started, until April 2014.

Investors are nervous about the escalating tensions between the west and Russia following the annexation of Crimea, which has driven down the Russian stock market by more than 10% since the start of the year.

Companies’ Expectations about their Financial Position in three months’ time fell to a record low in April. The Future Expectations Indicator declined to 54.4 from 55.6 in the previous month, mainly led by manufacturing and service companies. Construction companies were the most optimistic and their indicator remained broadly stable compared with the previous month.

Financial Position Future Expectations Hit a Record Low

59.8

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Financial Position

Current Conditions

Future Expectations

Financial Position





The indicator for Interest Rates Paid declined slightly in April to a series low of 49.7 following a sharp fall in the previous month to 50.0.

The decline in the indicator comes in spite of the increase in the central bank’s key rate. The one-week repo rate at which it lends money to financial institutions was increased to 7% from 5.5% at a surprise meeting on March 3 in an effort to stabilise its currency and left it at the same level at their regular meeting on March 14 as expected. The key message of the meeting was that the recent policy tightening will not be reversed in the coming months as inflation and financial stability risks remained high. The move was clearly aimed at trying to stem the decline of the currency.

The yield on the Russian 10-year government bond increased significantly to 8.93% on April 16, up from 8.33% on March 21, while the three month interbank rate stood at 8.42% compared with 8.39% in March.

The indicators for manufacturing and construction sector companies were bang in line at the expansion/contraction line, while for services companies it contracted, although the majority said they paid same interest rates as in the previous month.

Companies expected interest rates paid to contract for the first time in the previous month and this expectation remained the same in April as the Future Expectations Indicator remained at 49.4.

Interest Rates Paid Broadly Stable

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Interest Rates Paid

Current Conditions

Future Expectations

Interest Rates Paid





The Effect of Rouble Exchange Rate Indicator, which measures whether the exchange rate is helping or hurting businesses, declined for the second month in a row to 50.9 from 53.7 in March, significantly below the record high level of 61.0 recorded in February.

A value above 50 shows more firms reported that the exchange rate was helping, while a reading below 50 shows the exchange rate was hurting.

The Indicator hit a record low in August when there was a sell-off in all emerging markets after the Fed announced tapering of its bond buying programme. The indicator subsequently rose sharply but has fallen since February when the rouble depreciated sharply following Russia’s annexation of Crimea.

The rouble has fallen by around 10% against the US dollar since the start of the year and the speed of the descent has raised fears of economic instability among companies. There has been a small recovery in the currency over the past month.

There was a decline in the proportion of manufacturing and services companies who reported the exchange rate was helping business. Construction companies reported that they were not affected by the volatility of the rouble exchange rate. Expectations for three months‘ time remained at 50.0 for the sixth consecutive month, having stood slightly above the breakeven level in September and October 2013.

Effect of Rouble Exchange Rate Fewer Companies say Exchange Rate is Helping

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Effect of Rouble Exchange Rate

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Future Expectations





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25

30

35

40

2007 2008 2009 2010 2011 2012 2013 2014

Depreciation in the Rouble

RUB against USD

Source: The Central Bank of the Russian Federation


The time taken to deliver supplies to companies contracted in April. The Indicator for Supplier Delivery Times fell below the breakeven level to 49.5 from 50.0 in the previous month.

This was the first time the indicator has slipped below the 50 level this year, possibly reflecting the reduced order book especially for exports, leading to a shorter time taken by suppliers to deliver. The indicator fell and remained below the 50 among manufacturing companies while for construction companies it remained flat at 50.

Expectations for three months’ time remained unchanged in April at 49.7 for the fourth consecutive month. Future expectations have remained broadly stable since March last year, when the survey started, with the series averaging 49.7, and only rising above the breakeven level of 50 twice since then.

Supplier Delivery Times Below 50

49.5

40

42

44

46

48

50

52

54



Current Conditions

Future Expectations






Following three months of tightening, companies reported some easing in their credit availability in March and this optimism continued in April as the Availability of Credit Indicator increased by 1.7% to 53.9 from 53.0 in the previous month, the highest level since January.

Credit availability had risen gradually in 2013 until November and has subsequently trended downwards. However, it is still 11.4% above the level seen in April a year earlier.

The improvement in credit availability was led by manufacturing companies while it remained broadly stable for construction companies, bang in line at the 50 expansion/contraction level. In contrast, the indicator for service companies declined after rising in March.

Businesses expected credit availability in three months’ time to improve slightly after falling to a series low close to the 50 level in March. The Expectations Indicator increased for the first time in seven months, by 3% to 51.5 in April. The indicator has averaged 52.4 since March 2013, when the survey started.

International Credit rating agencies have warned that Russia‘s debt rating could be cut to junk status following the recent western sanctions. While so far sanctions have been limited to travel restrictions and asset freezes on individuals and a handful of banks, wider financial sanctions could cut off Russia’s credit lines, raising concerns that firms may not be able to refinance debt without the state’s support.

Availability of Credit Expands in April

53.9

40

45

50

55

60

65

70



Current Conditions

Future Expectations





Russia‘s central bank sought to assure that the blacklisting of Rossiya bank by US authorities in March does not have a serious bearing on the lender‘s financial stability and that the government would take necessary steps to support the lender and the interests of its depositors and creditors.

Spitzzeile Titel30

31 Historical Summary

32 Historical Records

33 Historical Records - Quarterly

Data Tables


Historical Summary2013 2014

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr


Current Conditions 62.9 62.5 57.8 51.8 51.3 59.0 56.3 51.5 45.5 57.9 60.0 52.5 55.6

Future Expectations 64.1 59.5 57.5 59.0 61.5 55.0 47.2 45.0 49.5 53.0 55.3 53.3 54.3

Production



New Orders



Export Orders



Productive Capacity



Order Backlogs



Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid






Supplier Delivery Time







Historical Records 2013- Current

Minimum Maximum Mean Median


Current Conditions 45.5 62.9 56.0 57.1

Future Expectations 45.0 71.3 56.1 55.2

Production



New Orders



Export Orders



Productive Capacity



Order Backlogs



Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid













Historical Records - Quarterly

Q3 13 Q4 13 Q1 14 Quarterly ChangeQuarterly %

Change

Current Conditions 54.0 51.1 56.8 5.7 11.2%

Future Expectations 58.5 47.2 53.9 6.7 14.2%

Production



New Orders



Export Orders



Productive Capacity

Current Conditions 51.1 51.0 50.3 -0.7 -1.4%


Order Backlogs



Employment



Inventories


Future Expectations 48.9 46.5 42.6 -3.9 -8.4%

Input Prices



Prices Received



Financial Position



Interest Rates Paid













Methodology

MNI Russia Business Sentiment is a monthly poll of Russian business executives at companies listed on the Moscow Exchange. Companies are a mix of manufacturing, service, construction and agricultural firms.

Respondents are asked their opinion on whether a particular business activity has increased, decreased or remained the same compared with the previous month as well as their expectations for three months ahead, e.g. Is Production Higher/Same/Lower compared with a month ago?

A diffusion indicator is then calculated by adding the percentage share of positive responses to half the percentage of those respondents reporting no change. An indicator reading above 50 shows expansion, below 50 indicates contraction and a result of 50 means no change.

Data is collected through computer aided telephone interviews and around 200 companies are surveyed each month.

Insight and data for better decisions

Discovering trends in Emerging MarketsMNI‘s Emerging Markets Indicators explore attitudes, perspectives and confi dence in Russia, India and China. Our data and monthly reports present an advance picture of the economic landscape as perceived by businesses and consumers.

Our indicators allow investors, economists, analysts, and companies to identify economic trends and make informed investment and business decisions. Our data moves markets.

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MNI Russia Business Report 2014-04

Economy & Finance

Transcript of MNI Russia Business Report 2014-04