MNI Russia Business Report September 2013

MNI Russia Business Report September 2013

Insight and data for better decisions

MNI Russia Business Report - September 20131

About MNI Indicators Insight and data for better decisions

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Written and researched byPhilip Uglow, Chief EconomistLorena Castellanos, EconomistShaily Mittal, Economist

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

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MNI Russia Business Report - September 2013 2

MNI Russia Business Report - September 2013Contents

3 Editorial

5 Executive Summary

9 Economic Landscape

13 Indicators

14 MNI Russia Business Indicator

15 Production

16 New Orders

17 Export Orders

18 Productive Capacity

20 Order Backlogs

21 Employment

22 Inventories

23 Input Prices

25 Prices Received

26 Financial Position

28 Interest Rates Paid

29 Effect of Rouble Exchange Rate

30 Supplier Delivery Times

31 Availability of Credit

33 Data Tables

37 Methodology

Spitzzeile Titel3

Credibility is everything in central banking and so far the newly appointed governor of Russia’s central bank, Elvira Nabiullina, seems intent on not losing hers.

So Far, So Good


Credibility is everything in central banking and so far the newly appointed governor of Russia’s central bank, Elvira Nabiullina, seems intent on not losing hers.

When Nabiullina took over the reins at Bank Rossii in June, accusations flew that she was a stooge appointed by President Putin, with growth flagging there has been growing pressure from within the Kremlin to find ways to boost the economy.

She also has some big shoes to fill. Her tenure follows that of monetarist Sergei Ignatiev, former “best European central bank head”, arch-hawk on inflation and great defender of the bank’s independence. During his 11-year tenure he has been credited with not only curbing inflation but also successfully easing exchange rate restrictions.

The contrast with Nabiullina is stark. She was a former economic aide to Putin and also an economy minister and thought to be less of an inflation hawk.

Little in her actions to date, though, has suggested she will throw away the hard earned credibility built up by her predecessor. Consumer price inflation rose strongly throughout 2012 and while it looks to have peaked in May 2013 at 7.4% it failed to decline in August as expected from 6.5% and is still above the 5%-6% target range. The Russian Central Bank held the refinancing rate steady at its September gathering with the new governor citing raised inflation expectations as the reason for not cutting rates. Nabiullina added that rates would likely remain unchanged next month barring no change in the current economic trend – no doubt a little disappointing for Putin.

Meanwhile, the central bank announced a shake-up of its current monetary policy framework to increase transparency. The current confusing array of rates and instruments will be streamlined, with the existing one week repo rate, which currently stands at 5.5%, to be known as the ‘key rate’. And playing catch up with other central banks, it is also planning to publish a schedule of future monetary policy meetings as well

as pre-announce exactly when changes to monetary policy will be made.

And all these steps are a move further down the route to full inflation targeting which would see the ‘key rate’ as the central bank’s main policy tool to control inflation, while the Rouble would be allowed to free float. This should provide some protection from fluctuating oil prices and help improve financial stability.

A credible and more transparent monetary framework will not only help to improve the monetary transmission mechanism but will also help limit financial market volatility and garner investor confidence.

So far so good for the new governor.

Philip UglowChief EconomistMNI Indicators

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The MNI Russia Business Indicator picked up strongly in September to 59.0 from 51.3 in August, following two months of lean growth.

Executive Summary



The summer lull followed turmoil throughout emerging markets given growing expectations that the US Federal Reserve announcement would likely begin to taper its bond purchases.

The September gain was driven by a strong improvement in business conditions in the manufacturing sector which rose to the highest since June 2013 and back into expansion following two months of contraction. The service sector indicator rose further into expansion in September, outstripping manufacturing.

Consistent with the rise in the headline Russia Business Indicator, Production jumped back into expansion in September, posting a monthly increase of 8.7 points to 58.0 from 49.3 in August.

Higher production levels were supported by a strong rise in New Orders to 61.5 in September from 51.5 in August, although below the peak of 73.8 seen in May.

Export Orders rose sharply to 54.3 in September from 44.9 in August, the highest reading since May 2013 and back into expansion.

Following four consecutive monthly declines, Productive Capacity increased to 52.0 in September from 50.3 in August, driven by a rise in capacity in both construction and agriculture.

Employment posted a slight rise in September, following three monthly declines, but remained only just above 50 and down from levels seen earlier in the year.

Order Backlogs increased for the third consecutive month in September to 49.2 from 47.1 in August, but still remained in contraction. Backlogs in both construction and manufacturing fell in September,

with both sectors pointing to a contraction in Order Backlogs on the month.

The Indicator measuring the Financial Position of firms increased sharply to 61.4 in September, a 14.6% gain from 53.6 in August, and the highest reading since June 2013.

Credit conditions for firms brightened in September as the Availability of Credit Indicator rose to 54.7 from 51.1 in August, the highest since the series began in March.

The Effect of the Rouble Exchange Rate Indicator rose to 51.0 in September from 49.4 in August, the highest reading since the series began in March, and back above the 50 mark for the first time since June.

MNI Russia Business Indicator

45

50

55

60

65

70

75

Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13


Overview

Jul-13 Aug -13 Sep -13Highest

Since Lowest

Since3-Month Average

Monthly Change

Monthly % Change


Current Conditions 51.8 51.3 59.0 May-13 - 54.0 7.7 15.1%

Future Expectations 59.0 61.5 55.0 - series low 58.5 -6.5 -10.6%

Production

Current Conditions 51.3 49.3 58.0 Jun-13 - 52.8 8.7 17.8%

Future Expectations 58.0 58.0 57.0 - Apr-13 57.7 -1.0 -1.7%

New Orders


Future Expectations 60.3 62.8 57.8 - Jun-13 60.3 -5.0 -8.0%

Export Orders


Future Expectations 52.1 53.0 43.3 - - 49.4 -9.7 -18.3%

Productive Capacity



Order Backlogs

Current Conditions 45.9 47.1 49.2 series high - 47.4 2.1 4.4%

Future Expectations 49.7 49.2 43.8 - Mar-13 47.6 -5.4 -11.1%

Employment

Current Conditions 52.0 50.8 51.0 Jul-13 - 51.3 0.2 0.5%


Inventories

Current Conditions 50.0 50.0 49.4 - series low 49.8 -0.6 -1.3%

Future Expectations 47.5 47.4 51.9 series high - 48.9 4.5 9.6%

Input Prices



Prices Received


Future Expectations 55.1 54.6 55.3 Jun-13 - 55.0 0.7 1.3%

Financial Position


Future Expectations 58.3 65.8 66.9 Mar-13 - 63.7 1.1 1.7%

Interest Rates Paid

Current Conditions 52.5 52.8 50.8 - series low 52.0 -2.0 -3.7%

Future Expectations 51.7 50.3 50.3 Jul-13 - 50.7 0.0 0.0%

Effect of Rouble Exchange


Future Expectations 49.1 49.3 50.7 series high - 49.7 1.4 2.7%

Supplier Delivery Times

Current Conditions 45.9 46.4 51.0 May-13 - 47.8 4.6 10.0%

Future Expectations 49.2 50.3 49.5 - Jul-13 49.7 -0.8 -1.5%

Availability of Credit


Future Expectations 52.7 53.1 54.9 Mar-13 - 53.6 1.8 3.3%

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The summer lull followed turmoil throughout emerging markets.


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Latest economic data pointed to a further weakening in the Russian economy. GDP growth hit its lowest for four years, industrial production was still down on the year and inflation remained relatively high.

Economic Landscape


Latest economic data pointed to a further weakening in the Russian economy. GDP growth hit its lowest for four years, industrial production was still down on the year and inflation remained relatively high. In spite of the weakness, the Russian Central Bank held the refinancing rate at 8.25% given the persistent strength of inflation. An announcement in September to move towards an inflation targeting system was welcomed by markets.

An average oil price of over $95 per barrel has not been enough to revive an economy harmed by capital outflows, low investment, weak external demand and serious structural failures. Given the current weakness, there are growing expectations that the Russian government will provide some stimulus. Amid the economic slowdown, the Moscow mayoral election result potentially opens a window to further political changes in this country.

Growth outlook worsensForecasts for growth were revised lower following the release of the weaker than expected second quarter GDP data and the continued weakness of external demand and investment. GDP rose just 1.2% compared with a year ago in the second quarter, the lowest annual growth rate since the 2009 crisis, and down from 1.6% in the first quarter.

A contraction in the manufacturing, transport and construction sectors all reduced GDP in the second quarter.

Construction output fell by 3.9% on the year following a rise of 0.4% in the first quarter, while manufacturing contracted 1.2% compared with a year ago after expanding 1.3% in the first quarter. Transport, storage and communications contracted 0.1% compared with a year ago. In contrast, mining and quarrying output posted a 1% rise on the year, following a 4.9% decline in the first quarter. Separate trade data showed that exports were weak during the first and second quarters but recovered in July, rising 5.5% compared with a year ago after six months of negative annual growth.

Following the weak GDP figures, the Russian Economy Ministry cut its forecast for 2013 economic growth to 1.8% from 2.4%. The forecast for 2014 was also revised down to a range of 2.8%-3.2% from 3.7% previously.

Refinancing interest rate unchangedThe central bank of Russia held the refinancing rate steady at 8.25% where it has remained since June. Markets expect the rate to remain unchanged at the next monetary policy meeting on October 14.

Bank officials have suggested that the refinancing rate will not be cut until inflation falls within the target range of 5%-6%. The interest rate for overnight loans and one-day loans, however, was cut to 6.5% in September. The maximum interest rate on one-week deposit auctions was raised to 5.5%.

In September, the Central Bank announced its intention to simplify its monetary policy instruments and move towards an inflation targeting system. This decision was welcomed by the markets as it included the introduction of a Bank of Russia “key rate“.

GDP Growth Y/Y % Change

-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


Consumer price inflation steady while producer prices accelerated Consumer price inflation remained stable at 6.5% in August, still above the Russian central bank’s 2013 target range of 5%-6%, but below the peak of 7.4% reported in May. Food prices increased at a slower pace in August but gasoline prices and other regulated prices increased at a higher rate.

Russia’s central bank remains confident that inflation will decline by the end of 2013, aided by a good harvest and a lack of significant demand-side inflationary pressures.

In early September, the President of Russia decided to freeze utility tariffs for next year in an attempt to fight inflation and boost the economy, which will have a significant downward impact on inflation next year.

In August, producer prices rose 2.8% compared with July, driven by higher prices in the mining and utilities sectors. This was the largest monthly gain since September 2012. In spite of the monthly leap, annual producer price inflation fell to 4.7% in August, from the 7.1% rate seen in July.

Weak investment and ongoing capital outflows In August, weak investment and weak external demand were highlighted by the Russian Central Bank as key risks to the Russian economy. Investment levels have continued to decline in 2013, with gross fixed capital formation down 1.3% in the first quarter compared with the fourth quarter and some 13.3% below levels in the same quarter in 2012.

In August fixed capital investment fell by 6.2% compared with July and was down 10.9% on the year, following 13 consecutive months of negative annual growth.

Inflation Steady in August

0%

2%

4%

6%

8%

10%

12%

14%

16%

2007 2008 2009 2010 2011 2012 2013

CPI Growth y/y %


Fixed Capital Investment Weakens

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2007 2008 2009 2010 2011 2012 2013

Fixed Capital Investment y/y %


The Russian government announced in June an investment plan of around $13 billion to construct roads and railways. It also continued to negotiate big infrastructure projects with China in the gas sector. These include a $10 billion investment of PetroChina in Siberian gas fields. Other large infrastructure investments are being planned as part of the Far East development plan proposed by the government.

Russia was already seeing investment seeping out of the economy before the emerging markets were hit by


expectations the US Federal Reserve would likely start tapering its bond purchases this year. Foreign Direct Investment in Russia fell considerably in the first quarter to minus $26.5 billion dollars, well below $1.5 billion seen one year ago and $6.2 billion reported in the fourth quarter of 2012. This result was mainly due to a dramatic drop in equity capital investments received from abroad. They stood at -$60.3 billion in the first quarter of this year, compared with -$13.9 billion in the fourth quarter of 2012.

Industrial production downIndustrial production rose a non-seasonally adjusted 0.5% on the month in August but was down 0.1% on the year, after a 1.2% monthly rise in July and a fall of 0.8% on the year.

Mining and quarrying production recovered in August, increasing 2% compared to a year ago after rising only 0.4% in July. Manufacturing remained weak, posting an annual drop of 0.2%, although up from the 1.5% decline seen in July. Utilities production decelerated further in August, falling 2% on the year, slightly down from a fall of 1.8% in July.

Industrial production was already expanding at a slower pace before 2009, when the crisis hit the Russian economy through lower commodity prices and weaker external demand. After a partial recovery, industrial output has trended downward since mid-2011.

Industrial Production Falling

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2008 2009 2010 2011 2012 2013

Industrial Production Annual Average

Industrial Production y/y %


Industrial Production - Main Sectors

-25

-20

-15

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013

Mining and Quarrying

Manufacturing

Utilities


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Thirteen out of the 15 current conditions indicators included in the report increased compared with the previous month. Only Inventory Level of Finished Goods and Interest Rates Paid declined.

Indicators



The summer lull followed turmoil throughout emerging markets given growing expectations that the US Federal Reserve would likely begin to taper its bond purchases.

The September gain was driven by a strong improvement in business conditions in the manufacturing sector which rose to the highest since June 2013 and back into expansion following two months of contraction.

The service sector indicator rose further into expansion in September, with growth in services outstripping manufacturing. While business conditions in the construction sector remained in expansion territory, they were down compared with the June-August period.

While current business conditions improved, expectations for three months’ time worsened. Recent economic data has likely increased concerns about the economic outlook. Weak GDP data for the second quarter was followed by a reduction in the government’s economic growth forecast for 2013 to 1.8% from 2.4%.

The Expectations Indicator fell to 55.0 in September from a peak of 61.5 in August, continuing the downward trend since the series started in March 2013. Service sector firms were more optimistic about business conditions in the future than in the previous

59.0MNI Russia Business Indicator Rises Markedly Above 50



Current Conditions 59.3 62.9 62.5 57.8 51.8 51.3 59.0

Future Expectations 71.3 64.1 59.5 57.5 59.0 61.5 55.0

45

50

55

60

65

70

75



Current Conditions

Future Expectations

month, but both construction and agriculture saw sharp falls.

Thirteen out of the 15 current conditions indicators included in the report increased compared with the previous month. Only Inventory Level of Finished Goods and Interest Rates Paid declined.

For business in the next three months, five out of 15 indicators improved, seven declined, while one remain unchanged.


Consistent with the rise in the headline Russia Business Indicator, Production jumped back into expansion in September, posting a monthly increase of 8.7 points to 58.0 from 49.3 in August.

Production fell significantly in July, having been broadly stable at around the 60 level since May, and moved below 50 for the first time in August.

The September increase was supported by a sharp rise in production in manufacturing, which rose just back into expansion following two months of contraction. September saw a significant decline in the number of manufacturing firms that reported decreased output.

Service sector Production rose at a faster pace in September, outstripping growth in manufacturing.

Future conditions have remained broadly stable since March, ranging between 56 and 59. Expectations for Production in three months’ time fell slightly to 57.0 in September from 58.0 in August.

Production Back to Expansion

58.0

40

45

50

55

60

65

70


Production Picks Up

Current Conditions

Future Expectations

Production





Higher production levels were supported by a strong rise in New Orders to 61.5 in September from 51.5 in August, although below the peak of 73.8 seen in May.

New Orders in the manufacturing sector fell into contraction in July and August but bounced back strongly into expansion in September. The service sector posted stronger growth in orders while the construction new orders indicator fell back but remained at a high level.

Expectations for the next three months declined to 57.8 in September from a series high of 62.8 in August.

New Orders Picked up in September

61.5

45

50

55

60

65

70

75


New Orders Up Strongly

Current Conditions

Future Expectations

New Orders





Export Orders rose sharply to 54.3 in September from 44.9 in August, the highest reading since June 2013 and back into expansion.

The improvement was led by manufacturing companies, although this was mainly due to more companies reporting that their Export Orders were the same, rather than an increase in those reporting higher orders. Export orders from the services sector also improved in September compared with the previous month.

Current Conditions and Future Conditions moved in opposite directions in September. While the former posted a monthly gain of 9.4 points, the latter saw a record 9.7 point fall. Expectations in three months time fell to 43.3 in September from 53.0 in August, the lowest reading since March 2013. Future conditions have trended downwards since the series started in March, although September was the first time the indicator moved below 50.

Latest trade data showed a sharp fall in Russian exports in the second quarter followed by a pick-up in July.

Export Orders Highest since June

54.3

40

45

50

55

60

65

70


Export Orders Jumped Markedly

Current Conditions

Future Expectations

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013

Exports Increase in July

Exports FOB ($B)

Exports y/y % (RHS)

Export Orders






Following four consecutive monthly declines, Productive Capacity increased to 52.0 in September from 50.3 in August, driven by a rise in capacity in both construction and agriculture.

Manufacturing and services companies, which represent the vast majority of the sample, saw capacity remain broadly unchanged from August.

Productive Capacity has eased throughout most of this year given the slowdown in the Russian economy. Investment has continued to decline in 2013, with latest data showing a decline of 13.3% on the year in the first quarter.

Expectations for the next three months continued the downward trend seen since April, moving below the 50 breakeven level to 49.5 in September, the lowest since the series began in March and down from 51.8 in August. Most of the companies surveyed reported they expected no change in their Productive Capacity in the near future.

Productive Capacity Improves Slightly

52.0

45

50

55

60

65

70


Productive Capacity

Current Conditions

Future Expectations

45

50

55

60

65

70

75


Productive Capacity and Rate of Capacity Utilisation

MNI Productive Capacity

Rate of Capacity Utilisation %

Productive Capacity





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Production and New Orders picked up driven by optimism in manufacturing companies.

In September, Production rose to 58.0 from 49.3 in August while New Orders increased to 61.5 from 51.5.


Order Backlogs increased for the third consecutive month in September to 49.2 from 47.1 in August, but still remained in contraction.

Backlogs in both construction and manufacturing fell in September, with both sectors pointing to a contraction in Order Backlogs on the month.

Orders Backlogs have been in contraction since the series started in March 2013 but the current trend suggests a move above the breakeven 50 level is possible in October. Any possible move into expansion, however, could be shortlived as expectations for the next three months fell significantly in September.

The future conditions indicator fell to 43.8 in September from 49.2 in August. Except for May, when the indicator stood at 50, expectations for Order Backlogs have remained in contraction since the series began in March.

Order Backlogs Remain Below 50

49.2

35

40

45

50

55

60


Order Backlogs Close to Expansion

Current Conditions

Future Expectations

“Any possible move into expansion, however, could be shortlived as expectations for the next three months fell significantly in September.“

Order Backlogs





Employment posted a slight rise in September, following three monthly declines, but remained only just above 50 and down from levels seen earlier in the year.

The Employment indicator rose to 51.0 from a series low of 50.8 in August. Weakness in the construction sector was offset by small gains in manufacturing and services, where an increased number of firms reported that their number of employees was “just right”.

Companies predicted that they will have even less need to take on new employees in the next three months’ with the Future Conditions indicator falling to 47.5 in September from 50.8 in August, the first reading below 50 since the series started in March.

In spite of the weakening seen in the Russian economy, official data showed the unemployment rate fell in August to 5.2% from 5.3% in July, with the number of unemployed remaining at 4 million. This continued the downward trend since a pick-up in January

During the September G-20 meeting, the Minister of Labour and Social Protection said he expected unemployment to remain at the level seen in July (5.3%) until the end of the year.

Employment Stable after Recent Falls

51.0

47

49

51

53

55

57


Employment Expectations in Contraction

Current Conditions

Future Expectations

4

5

6

7

8

9

10

2007 2008 2009 2010 2011 2012 2013

Unemployment Falls in the Third Quarter

Unemployment Rate

Employment






The Inventory Level of Finished Goods Indicator declined slightly to 49.4 in September from 50.0 in August, the lowest level since the series began in March 2013.

The dip just below 50 in September indicated that a slightly greater number of companies reduced stock levels in September compared with August. The indicator, however, has remained incredibly stable over the past seven months, hovering very close to the 50 breakeven level.

In contrast, expectations for three months’ time have risen sharply since March. The Future Conditions Indicator rose 4.5 points to 51.9 in September from 47.4 in August, the first time the indicator has been above 50. The gain was led by expectations among manufacturing firms who expected to see growth in stocks over the coming months.

Inventories Slipped into Contraction

49.4

35

40

45

50

55

60


Inventories Steady around 50

Current Conditions

Future Expectations

Inventories





Input Prices increased to 55.8 in September from 50.5 in August, reversing the downward trend in the indicator seen since May.

Input prices increased in all sectors, led by a strong rise in prices for construction companies. Both manufacturing and service sectors saw prices rise compared with the previous month.

Consistent with the Input Prices indicator, producer prices have accelerated over the last three months due to higher prices in the utilities sector as well as in mining and quarrying. In August, producer prices rose 2.8% compared with July, the largest monthly gain since September 2012. In spite of the monthly leap, annual producer price inflation fell to 4.7% in August, from the 7.1% rate seen in July.

Oil prices have risen significantly in both July and August, because of the current situation in Syria.

Expectations for three months’ time declined slightly to 55.3 in September from 56.6 in August, the lowest reading since March 2013, continuing the downward trend in the series seen since March.

Input Prices Highest since June

55.8

47

52

57

62

67


Input Prices

Current Conditions

Future Expectations

Input Prices




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Input Prices increased to 55.8 in September from 50.5 in August.

Oil prices have risen significantly in both July and August, because of the situation in Syria.


The Prices Received Indicator, which shows the prices that companies charge for their goods and services, rose to 58.3 in September from 54.0 in August, the highest since June.

The latest increase was driven by increased prices at manufacturing and service sector companies, while prices charged by construction firms remained stable.

While the latest rise put the indicator above the three month average of 54.4, it is still below the peak in the series seen in May. This peak coincided with the 7.4% rise in consumer prices also observed in May. Inflation fell back to 6.5% in August in line with our survey results.

Expectations for Prices Received in three months’ time rose slightly to 55.3 in September from 54.6 in August but remained close to the 55.0 level where it has been since May.

Continued high inflation has made it impossible for the Russian central bank to loosen monetary policy in a bid to boost growth. The renewed increase in Prices Received suggests it will take time for inflation to fall to the central bank’s 5%-6% target range.

Prices ReceivedOn a Rising Trend Again

58.3

45

50

55

60

65

70


Prices Received

Current Conditions

Future Expectations

6.2

6.4

6.6

6.8

7

7.2

7.4

7.6

20

30

40

50

60

70

80

Mar-13 May-13 Jul-13 Sep-13

Prices Received and CPI

MNI Prices Received

CPI % y/y (RHS)

Prices Recived






The Indicator measuring the Financial Position of firms increased sharply to 61.4 in September, a 14.6% gain from 53.6 in August, and the highest reading since June 2013.

The latest gain was driven by a sharp bounce back in the Financial Position of manufacturing companies, moving back into the expansion zone, having slipped into contraction in July and August. Service sector companies reported even greater optimism in September compared with August.

Construction companies continued to report that their financial positions had improved compared with the previous month although fewer companies reported an improvement than in August.

Expectations for three months’ time rose to 66.9 in September from 65.8 in August, the highest reading since March as optimism among both manufacturing and services sector firms increased.

The recent strength in oil prices, due to the continued tension in the Middle East, has likely had a positive effect on the financial position of companies. The sharp fall in commodity prices in April coincided with a decline in the Financial Position Indicator at that time.

Financial Position Improvement in Companies‘ Financial Conditions

61.4

48

53

58

63

68


Financial Position

Current Conditions

Future Expectations

Financial Position




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Financial positions improved sharply in September to 61.4 from 53.6 in August.

Optimism among manufacturing and service sector companies led the increase.


The indicator on Interest Rates Paid declined to 50.8 in September from 52.8 in August, a 3.7% drop on the month to the lowest level since the series began in March.

Service sector firms reported that interest rates were unchanged compared with the previous month, with the indicator falling to the breakeven mark. This was the lowest in the series‘ history and continuing the downward trend seen over the past four months. Slightly fewer manufacturing firms reported rising interest rates in September, compared with August, with the indicator remaining just above 50.

The yield on the Russian 10-year government bond has fallen 50 basis points over the past year to stand at 7.36% on September 18th, while three month inter-bank rates have fallen by 30 basis points to 6.8%.

Expectations for the next three months remained at 50.3 in September. This is in line with expectations that Russia’s central bank will maintain the refinancing rate at 8.25%, given that inflation is unlikely to fall to the 5%-6% target range this year.

Interest Rates Paid Lowest since March

50.8

40

45

50

55

60


Interest Rates Paid at Series Low

Current Conditions

Future Expectations

Interest Rates Paid





The Effect of the Rouble Exchange Rate Indicator rose to 51.0 in September from 49.4 in August, the highest reading since the series began in March, and back above the 50 mark for the first time since June.

Businesses are asked whether the exchange rate is helping or hurting their company and a value above 50 shows more firms reported that it was helping, while a reading below 50 shows the exchange rate is hurting business.

Along with other emerging economies, Russia has experienced a weakening of its currency in recent months as expectations have grown that the US Fed will begin to ease back on Quantitative Easing.

Over the past year, the rouble has fallen around 4.7% against the US dollar. The risk to the currency from any policy change in the US looks minimal, however, as Russia runs a current account surplus, low fiscal deficit and has little reliance on foreign direct investment. In addition, the continued high oil price provides support for the currency.

The expectation for the next three months rose to 50.7 in September from 49.3 in August, the highest since March. This was the second time this year the expectations indicator has crossed the 50 benchmark level.

Effect of Rouble Exchange Rate Highest since March

51.0

40

45

50

55

60


Effect of Rouble Exchange Rate Stable around 50

Current Conditions

Future Expectations

20

22

24

26

28

30

32

34

36

38

2007 2008 2009 2010 2011 2012 2013

Rouble Depreciates Against USD

Current Conditions

Future Expectations

Effect of Rouble Exchange Rate




Source: The Central Bank of the Russian Federation


Supplier Delivery times lengthened to 51.0 in September, the highest since May, and back above the breakeven 50 level.

Both manufacturing and services indicated an increase in delivery times in September compared with August. Construction companies also reported an increase between August and September but remained in contraction.

The latest pick-up in delivery times is in line with the rise in Production, New Orders and Order Backlogs in September.

Expectations for Supplier Delivery Times in three months’ time fell to 49.5 in September from 50.3 in August.

Supplier Delivery Times Increase Again

51.0

35

40

45

50

55

60


Supplier Delivery Times Back into Expansion

Current Conditions

Future Expectations

Supplier Delivery Times






The Availability of Credit Indicator moved from contraction to expansion in May and has subsequently remained above the 50 breakeven mark.

Service sector firms showed the most marked improvement, while manufacturing companies showed a smaller gain. Construction firms reported no change in their availability of credit compared with a month earlier.

Most firms continued to see credit availability improving, with the expectations balance rising to 54.9 in September from 53.1 in August, the highest since March 2013. Only those companies in the construction sector expected their credit conditions to worsen in the next three months.

Availability of Credit Record High

54.7

40

45

50

55

60


Availability of Credit Improves

Current Conditions

Future Expectations

-40%

-20%

0%

20%

40%

60%

80%

0

1,000

2,000

3,000

4,000

5,000

6,000

2008 2009 2010 2011 2012 2013

Bank Lending: Corporate and Personal Loans

Corporate and Personal Loans y/y %

Corporate and Personal Loans (Russian Rouble Billions)





Source: The Central Bank of the Russian Federation

Spitzzeile Titel 32

w

The Availability of Credit Indicator moved from contraction to expansion in May.


Spitzzeile Titel33

34 Historical Summary

35 Historical Records

36 Historical Records - Quarterly

Data Tables


Historical Summary





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

Minimum Maximum Median Mean


Current Conditions 51.3 62.9 57.8 59.0

Future Expectations 55.0 71.3 61.1 59.5

Production



New Orders



Export Orders



Productive Capacity



Order Backlogs



Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid













Historical Records - Quarterly

Q2 13 Q3 13 Quarterly Change Quarterly % Change


Current Conditions 61.1 54.0 -7.1 -11.5%

Future Expectations 60.4 58.5 -1.9 -3.1%

Production



New Orders


Future Expectations 58.7 60.3 1.6 2.7%

Export Orders



Productive Capacity



Order Backlogs

Current Conditions 45.3 47.4 2.1 4.6%


Employment



Inventories



Input Prices



Prices Received



Financial Position



Interest Rates Paid










Current Conditions 51.5 52.6 1.1 2.1%



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.

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Economy & Finance

MNI Russia Business Report September 2013