Translated material
Minus optimism
Negative sentiment is intensifying in the Russian business environment
The mood in the domestic business environment still resembles storm and panic. Based on the results of May, this definition was shown by the “Business Russia Barometer”. More and more entrepreneurs are talking about a decline in production. By the beginning of summer, the index of entrepreneurial expectations also collapsed. Moreover, this trend is opposite to that which prevails in the business environment of leading Western economies - moderately optimistic sentiments there are gradually beginning to intensify.The monthly study “Business Activity Barometer” has been conducted by “Business Russia” and the Development Center since January of this year. To construct the Barometer, data obtained from surveys of managers of 700 Russian manufacturing enterprises are used.
All questions to entrepreneurs are grouped into three main indices that reflect the current state of business activity, entrepreneurial expectations for the next quarter and an assessment of the state of the business environment. In turn, the business environment index consists of five indices that reflect the intensity of competition in the economy, the level of current costs and resource constraints, the level of development of the shadow economy and the effectiveness of government policy. The arithmetic average of the three main indices gives the final result of the Barometer. At the end of 2008, the overall figure was minus 27.8, which is below the 1996 level. The Barometer reading for May dropped to minus 28.3 compared to minus 27.4 in April.
The state of business activity has deteriorated even further; the manufacturing industry has been “stormed” for six months now, and every month it gets worse. Compared to April, the index of business expectations sharply worsened in May (fell from minus 26 to minus 36), in particular, due to negative assessments by entrepreneurs of the prospects for future capital investments. This parameter immediately fell by 50 points.
Entrepreneurs also expect a decrease in effective demand (74% of entrepreneurs estimate demand to be “below normal”) and production volumes.
Among all indicators, positive dynamics are visible only in the current state index - entrepreneurs positively assess the current volumes of product inventories. 54% of entrepreneurs call stocks “normal”, 29% of business owners call them “above normal”. Paradoxically, the business community has noted an improvement in the situation with the tax burden and a reduction in labor costs. But as before, the majority of entrepreneurs complain about the rising cost of services from natural monopolies and the increasing burden of control authorities.
The half-year index of government policy effectiveness fell to 15.7%. According to entrepreneurs, business is protected very weakly by the judicial system (index minus 39) and laws in force in the economic sphere (index minus 17). Business assesses the work of local and regional authorities worst of all (the index is minus 33 and minus 29, respectively). In the positive sector of the government efficiency diagram, there is only an indicator of the efficiency of customs authorities - plus 31 points.
Business pessimism is easily explained, because government support goes to natural monopolies, says Business Russia Chairman Boris Titov. Selective measures of state support, according to him, led to a total decline in the most multiplying industry - construction, where small measures of support could have caused an upsurge in related industries - metallurgy and the chemical industry. “Supporting the manufacturing business is only a side goal in the state’s economic policy,” he is confident, saying that the development of the manufacturing industry is not a priority of the Russian authorities, who still rely on a commodity-based economy.