Deficit recovery: business climate indicator continues to improve thanks to fiscal injections into the economy

In March, the business climate indicator, which the Central Bank calculates based on a large-scale survey of enterprises, rose to the level of the second quarter of 2021, when a vigorous post-pandemic economic recovery began. Moreover, this is one of its highest values ​​since 2014. The indicator reflects the business perception of relative changes in the environment, and current assessments of business conditions, as well as short-term expectations, are growing for the second month in a row. However, this positive trend is observed in almost all sectors with the exception of those associated with household consumption, that is, with the exception of consumer goods production and retail trade. This circumstance indicates that the main driver of recovery is generous budget injections, while demand from households remains weak. In this case, the reduction in the pace of budget spending already announced by the Ministry of Finance will inevitably affect the self-perception of business.

In March, the consolidated value of the Central Bank's business climate indicator increased to 6.9 points - from 5.5 points a month earlier. For the second month in a row, businesses reported improvements in both current business conditions and short-term expectations for production and demand. In February, the aggregate value of the indicator exceeded the level that was observed on the eve of the first wave of mobilization in September 2022. Now the value has climbed to the level of the second quarter of 2021, when the economy moved to a vigorous post-pandemic recovery.

The current ratings indicator in the March survey was 0.4. That is, there were, at least slightly, more enterprises that reported an improvement in the situation than those who reported a deterioration. It is noteworthy that this indicator was in the positive zone, again for the first time since mid-2021. In general, during the period from 2014 to 2021, it was almost constantly in the area of ​​negative values. The transition of the indicator to the positive zone means a relative (compared to the previous period), but significant improvement in the situation, since the norm in recent years has been the predominance of negative assessments over positive ones.

Current business conditions, according to a Central Bank survey, have improved the most in wholesale trade and construction. Reductions in estimates were noted in mining, energy, water supply, automotive retail and agriculture.

The short-term expectations indicator rose from 11.8 to 13.5 points over the month. The indicator has been growing for five months in a row. The picture is the same here: for the entire period starting from 2014, expectations were higher only in the second quarter of 2021, and the average value of the expectations index at the end of 2021 was 11.4 points. The expectations of logisticians have noticeably improved, and the most optimistic expectations are in agriculture.

Central Bank business climate indicator, 2022–2023

The balance of production estimates remained positive for the second month in a row. The indicator value in March is also the highest in a long time. Strong dynamics are provided mainly by construction, logistics, wholesale trade and services. There is a clear deterioration in the automotive retail industry, which has not yet adapted to the exodus of the largest automakers from Russia. Companies complained to the Central Bank about rising purchase prices due to the weakening of the ruble and increased logistics costs. It is noteworthy, however, that the balance of manufacturing output estimates is positive. At the same time, the highest indicators are among manufacturers of investment goods. (As Re: Russia wrote earlier, this may be due to both ongoing import substitution and the expansion of the production base of the military-industrial complex.) Producers of intermediate goods have a positive, although not so significant, balance. And in the manufacturing industries producing consumer goods, the balance of estimates does not show such an upward trend - in the last month it worsened and is in the negative zone.

Demand estimates are at their highest since January 2022. The most noticeable growth is in wholesale trade (except for automobiles) and the production of consumer and intermediate goods. For enterprises producing investment goods, estimates of current demand are at the maximum level. For manufacturers of consumer goods, on the contrary, they are getting worse. Demand in construction continues to grow, thanks to preferential mortgage programs. The most negative assessments are in retail trade.

The growth of enterprise costs continued to slow down. At the same time, price expectations have risen, after declining in the previous two months. Most noticeable in trade. Prices in the logistics and service industries are also expected to rise due to high demand.

“In recent months, the strongest growth... occurred in processing, construction, transport, services - these are the industries that can be considered the epicenter of the latest wave of economic recovery,” summarizes the results of the survey on the MMI Telegram channel. “At the same time, the situation in the retail sector remains difficult, and this is a clear illustration of the weakness of consumer demand.”

Simply put, the growth of the business climate indicator appears to have been paid for by generous budgetary injections. The sector associated with household consumption (consumer goods, retail) is doing much worse. Meanwhile, the increase in spending led to the budget deficit in January-February reaching 2.58 trillion rubles, which is 88% of the deficit budgeted for the entire 2023. Therefore, already in March the pace of spending will decrease significantly, warns the Ministry of Finance. Most likely, after this, the business climate indicator will creep down with some lag.

The values ​​of the business climate indicator are the modified difference between the answers “the situation has improved” and “the situation has worsened.” The summary indicator is formed from two components - an assessment of the current business climate and an assessment of the expected business climate. Business managers are asked how they assess changes in demand and production volume at the time of the survey and three months into the future. Separately, the Central Bank calculates composite indices for demand and production volume. The survey covers about 14 thousand enterprises of all key types of economic activity. Indicators for previous periods are reflected on the basis of complete data, taking into account questionnaires received after the preparation of operational information.