Adaptation weekdays – Newspaper Kommersant No. 148 (7349) of 08/16/2022
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Russian mirror import statistics show a summer slowdown in the decline in equipment supplies to the country. With a slowdown in investment in the economy, this can be explained by the activity of small and medium-sized companies, including those stimulated by the state. All this, however, does not guarantee that by winter the problems in the industry will increase due to the depletion of stocks of imported components that cannot be replaced by parallel imports or from other suppliers.
Mirror foreign trade statistics (covering more than 80% of foreign trade until February 2022, see chart) allowed analysts of the Solid Numbers Telegram channel to record a slowdown in annual export growth rates to 29% in June from 33% in May (leaders — India — 568 % and Turkey – 119%). The decline in imports slowed to 30% year-on-year in June from 47% in April 2022, amid an increase in shipments in June compared to May from 87% of trading partners. The second month is slowing down and the pace of supplies of machinery and equipment is falling – up to 57% year-on-year in June. The leaders in the growth of supplies of goods to Russia were Belarus and Turkey (46% and 47% respectively), imports from the United States decreased in June by 89%, and from France – by 73%. “Our import estimate is weaker than the official data for the second quarter of 2022, which indicates the redirection of trade flows through countries where statistics are not available. The Ministry of Industry and Trade estimates parallel imports in 2022 at $16 billion, which is about 5% of imports in 2021,” the authors specify.
The activation of imports, taking into account the slowdown in investments of large companies, can be explained by the growth in the activity of small and medium-sized businesses. SMEs are a sector of the economy that adapts to changes faster than large companies, so the growth of its investment may well be accompanied by a decline in investment in general. The RSBI index (calculated by PSB, Opora Rossii and Magram Market Research) indicates an improvement in SME business sentiment in July, precisely due to positive investment dynamics. 20% of entrepreneurs (plus 3 percentage points) reported on the increase in investments, another 27% (plus 5 percentage points) are ready to invest in the next three months. “Entrepreneurs are trying to occupy the niches that were vacated after the departure of certain foreign companies,” explains Kirill Tikhonov, vice president of PSB.
In recent months, the government, counting on accelerated import substitution, launched several programs to stimulate the investment activity of small businesses at once – we are talking about both concessional lending to the sector and attempts by the Ministry of Industry and Trade to bring customers and suppliers together by compiling a list of products needed and manufactured in the Russian Federation. In general, sentiment in the SME sector is improving – the RSBI index rose from 50.5 to 51.1 points over the month. Respondents were more likely to report a rebound in sales (albeit still lower than in February) and plans to expand staff. In terms of sectors, the situation is uneven: with the growth of the index in the service sector, a deterioration in production was recorded – as stocks are depleted, enterprises are more susceptible to supply disruptions. “We can expect a complex process of business restructuring and the need for working loans rather than investments,” warns Kirill Tikhonov.
Note that aggregate inventory data on its own is next to useless in the current situation: these statistics do not distinguish between stocks of raw materials and intermediate goods (which could signal a future decline) from stocks of finished goods in warehouses. In addition, inertia in production increases the inventory of intermediate goods when the supply of some components fails – this can mitigate real problems that will appear later.
Mirror data on foreign trade in June make it possible to fix not only a continuation of the reversal in the dynamics of imports and exports, but also the normalization of the foreign trade balance of the Russian Federation. The latter, already according to data for July, was confirmed by the Central Bank, revising the ultra-high estimates of the balance of payments and trade (see Kommersant of August 10) in the report on monetary policy (see Kommersant of August 12). The clarification of the Central Bank, as expected, explains not only the situation with the foreign trade surplus (the balance of trade in goods and services in July amounted to $25 billion – below the average level of $27.8 billion in the first half of 2022 and $33.9 billion, according to preliminary estimates), but and weakening of the ruble in July.
Indirect data, however, indicate that in July the trend of import recovery could also falter. According to the Ministry of Finance, tax revenues to the federal budget from imports in July decreased by 43.7% against a fall of 45.3% in annual terms a month earlier, analysts of the MMI Telegram channel calculated: “This is an indirect signal that problems with imports are not being resolved . This is very bad news, indicating an increase in risks to the economy. After the imposition of sanctions and the collapse of imports in March, many companies talked about the availability of stocks of components for an average of six to nine months. It was the presence of reserves that softened the collapse in the manufacturing industry, which sank from the February highs by about 11-12%.” A possible wave of decline in processing associated with intermediate imports is expected by analysts by the end of the year.
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