Lowest Expectations Since December 2013
Russian companies were more upbeat about the business environment in August, in spite of the plunge in oil prices in recent months. The MNI Russia Business Sentiment Indicator rose 1.9% to 52.3 in August from 51.3 in July, the highest since the introduction of sanctions in July 2014.
In spite of the rise, companies reported that their access to credit had become more limited following months of improvement. One possible reason for this could be due to the slowdown in China, where Russian firms had apparently looked toward to fulfil their financing requirements, as banks in the world’s second largest economy act more cautiously amid the greater market volatility.
Inflationary pressures returned in August as the depreciation of the currency pushed up companies’ input costs. Faced with higher input costs, firms raised their own prices and had significantly higher expectations for what they would charge in the next three months.
However, The MNI panel took the recent rouble rout as a positive with the indicator capturing the effect of the exchange rate rising 18.2%. While exports stumbled slightly this month, the weaker currency could help to boost overseas demand over the coming months while also encouraging some degree of import substitution.
Companies anticipated that business conditions would worsen over the coming three months with the Future Expectations Indicator falling 6.6% to 49.7 in August from 53.2 in July. The MNI panel’s near-term outlook now stands at the lowest since December 2013, in sharp contrast to the 22-month high attained in June, illustrating just how quickly expectations have soured.
Commenting on the latest survey, Philip Uglow, Chief Economist of MNI Indicators said:
“While the sharp fall in the oil price has no doubt hurt a number of companies in the panel, on aggregate business confidence continued to trend higher in August and is now significantly up from the February trough.”
“Our survey period closed before the China-led global equity and commodity rout which may well dampen sentiment next month. Already businesses were becoming less optimistic about the coming months and weaker oil prices and the rapid depreciation in the rouble threaten to derail the recovery.”