Thursday, April 2, 2015

2/4/15: Russia Business Outlook: Q1 2015

While we are waiting for Markit to publish the latest Services PMIs for BRIC economies and the last remaining Manufacturing PMI of the group for India, here are some interesting stats on longer-term outlook in the Russian economy.

Via Markit Russia Business Outlook survey for Q1 2015, covering business expectations 12 months forward:

  • Overall private sector outlook forward has improved at the mid-point of Q1 2015 compared to the start of Q4 2014 as headline % of companies expecting an increase in next 12 months minus % expecting a decline has risen to +20% from Q4 2014 record low of +10%. 
  • Nonetheless, as Markit notes, "the latest figure is still the joint-second lowest since the series began in late-2009."
  • "Moreover, among the countries surveyed globally, only Japan (+16%) and France (+19%) have weaker activity expectations than Russia."

Interesting point: per Markit, "The overall improvement in the business outlook has been driven by manufacturers. The net balance for expected goods production over the next 12 months has risen to +35%, the highest since October 2013." We are seeing effects of imports substitution.

Another point is that Services providers are much less optimistic: "...the services activity net balance has risen only slightly to +12%, the third lowest on record and the weakest figure among all

countries surveyed."

Core drivers for downside in expectations: "general weakness in the wider economy, a lack of working capital, high interest rates, inflation, currency fluctuations and a rising tax burden." Key risk, especially in the Services sector, is Capex: "... firms expect to cut capital expenditure over the next 12 months. The net balance for capex has trended lower since the start of 2013, and has fallen into negative territory in February for the first time, at -2%. This is also the lowest capex net balance of all countries surveyed. Service providers expect to cut capex (-3%) while the outlook at manufacturers is broadly neutral (+1%)."

Considering the above chart, the slowdown in the economic growth has become pronounced in Q4 2013, although structural weaknesses appear to set in around the ned of 2011. This is also consistent for the BRIC group overall as shown in the chart below:

Excluding Brazil (see my PMI analysis of the BRIC for more on this) all other BRIC economies have posted a sharp drop in expectations starting with Q1 2012. This trend remains persistent through Q1 2015, with Brazil joining the line up in full in Q1 2015.

Not a good sign for the global economic growth prospects...

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