MNI: Business sentiment in Russia up in March but recession may be there already

By Andrei Skvarsky.

Regular surveys by Deutsche Boerse-owned research company MNI Indicators suggest that business sentiment in Russia bounced back in March after a protracted decline but that overall the Russian economy remains on a downward course, with the firm’s chief economist arguing it “may already be in recession”.

The MNI Russia Business Sentiment Indicator, an index based on monthly polls of Russian company executives, rose by 16.2% to 48.8 in March from 42.0 in February (the Indicator’s magnitudes below 50 represent contraction, those above 50 mean expansion and 50 is the breakeven mark).

However, almost 85% of respondents believed that overall business conditions had not changed since February, and only 7% thought they had improved.

Contrary to expectations, the weak ruble had failed to stimulate exports, with more companies saying the depreciation of the currency was hurting rather than helping their business, according to an MNI Indicators report on March’s survey.

The availability of new orders was at the lowest point since the research firm launched its surveys in March 2013.

The output indicator rose in March but remained below the 50 level and, by and large, was still going down.

A record number of companies said their inventories were growing due to weak demand. The inventories indicator has been rising steeply since the West slapped its Ukraine-related sanctions on Russia in early 2014.

The input prices and prices received indicators dropped back in March after a sharp spike in February, but both remained high, which continued to weigh down on overall sentiment.

“There were some conflicting signals from this month’s survey,” said MNI Indicators chief economist Philip Uglow.

“Overall business sentiment bounced back, as did output, although both remained in contraction and at low levels. New Orders, however, continued to fall sharply and firms reported a record pace of stock building which was likely unplanned for the most part,” he said.

“Moreover, sentiment in the first quarter of 2015 as a whole was the lowest in the survey’s history, an early indication that the economy may already be in recession.”

The MNI Russia Business Sentiment polls involve computer-aided telephone interviews with executives at about 200 Russian companies – manufacturing, service, construction and agricultural firms – listed on Moscow Exchange.

Respondents are asked whether they believe a particular business activity has increased, decreased or remained the same compared with the previous month as well as what their expectations are for three months ahead.

Diffusion indicators are then calculated by adding the percentage share of positive responses to half the percentage of the respondents reporting no change.

MNI Indicators is part of Deutsche Boerse’s MNI intelligence firm.

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