Page 27 - RusRPTApr20

However, the wind had already gone out of the sails even before oil prices started a free fall on March 6. Of the manufacturers and service providers that were expecting a rise in business activity, opportunities for growth identified include greater marketing activity and investment in new product development, Markit said. But concerns on the outlook for output have begun to weigh heavily on company confidence.
“Threats to growth are largely centred on challenging domestic demand conditions and worries that clients would cease trading in the near future, with greater competition for customers exacerbating this,” Markit reports.
The miasma that has been creeping over the Russian markets has deepened in the last week as the oil price shock hits and will only make the pessimism worse.
Markit just reported Manufacturing Purchasing Index (PMI) numbers that were still in the black, although the manufacturing sector is still contracting despite a mild improvement in February. But with the composite index posting 50.9 – only just above the 50 no-change mark – Russian business was just treading water.
The PMI index is almost certain to fall into the red in March. In a sign of things to come China’s PMI imploded in February, tumbling to 38 – its lowest rate on record – on the back of the shock cause by the coronavirus epidemic. The same epidemic arrived in Europe in the last month and is growing rapidly.
“Employment & Investment Plans Manufacturers and service providers are less optimistic of an increase in hiring activity over the coming 12 months, with the overall net balance falling to +9% in February (from +17% in October). Less robust forecasts for employment are, in part, linked to reports from firms regarding difficulties finding suitably skilled candidates,” Markit reports.
Expectations of weak demand conditions across the domestic market are also weighing on investment forecasts, with the net balance of firms that foresee a rise in capital spending dropping from +22% in October to +8% in February.
With the Russian economy growing weakly, fixed investment will play a crucial role for growth in 2020 and the government has set a target of raising fixed investment to 25% of GDP this year – a target economists fear will be missed now thanks to the multiple shocks the economy is facing.
The one part of the economy that will benefit from the cooling off is inflation, where the upward pressure on prices will be deflated by falling demand thanks to virus fears and the devaluation of ruble associated with the fall in oil prices.
“Russian private sector firms are signalling a reduction in optimism towards prospects for output growth over the coming 12 months, amid greater competition and difficult domestic demand conditions. The lower net balance is also reflected in weaker outlooks for employment, investment and profits,” said Siân Jones, an economist at IHS Markit. “Notably, the data collection period for the latest Russia Business Outlook survey preceded the escalation of the coronavirus disease 2019 (COVID-19) outbreak across Europe, which may have further dented output expectations in Russia.”
27 RUSSIA Country Report April 2020 www.intellinews.com