Capacity shortages cloud production prospects

Optimism regarding the economic situation in the six-month period is decreasing both among representatives of the mining (from 8.4% to 7.7% of the total number of respondents) and manufacturing industries (from 17.1% to 16.4%), follows from Rosstat data about business activity in October. The business confidence index in mining amounted to 1.8% in October (after 1.7% in September), in processing – 4.6% (unchanged).

In October, RSPP analysts also noted the change from a period of consistently high assessments of the state of the business climate to a period of fluctuations and instability. Although the RSPP business environment index rose to 46.5 points, adding 3 points to September, it still remains in the decline zone (value below 50 points). The index growth was ensured by positive demand dynamics. Demand for final products increased among 25% of respondents; in the B2B segment, the number of new orders increased among 30% of companies. Rosstat data showed no fluctuations in estimates of current demand in processing and production prospects, but in production there was a decline in demand with optimistic production forecasts. Meanwhile, the growth in demand is recorded by the PMI index of manufacturing industries. According to S&P Global, the growth rate of new orders was the highest since March 2011, driven primarily by domestic demand, while new export orders grew slightly.

Prospects for production are limited by the production capabilities of the industry. Enterprises are de facto working at the limit: in mining, the average level of capacity utilization remains at the level of September (59%), in processing – no changes for the fourth month in a row (61%), follows from Rosstat data. The number of employees is assessed by enterprises as insufficient: minus 13.2% in mining and minus 19.1% in processing. Capacity pressure is forcing companies to expand staff, S&P Global said, but that capacity is limited by tight labor markets.

At the same time, companies’ production costs are rising: due to exchange rate changes, transportation costs and supplier prices have increased. According to the Russian Union of Industrialists and Entrepreneurs, an increase in purchase prices was noted by two-thirds of respondents; 31% of surveyed enterprises transferred them to the final prices, passing the costs on to customers. S&P Global calculated that the rate of inflation in selling prices was the second fastest since April 2022.

Diana Galieva