Company prices are ready to rise without demand

According to market research data of the Bank of Russia, collected on the basis of surveys of more than 14 thousand companies in the main sectors from January 1 to January 23, 2023, the business climate (BC) in the Russian economy has not changed over the month – the BC index remained at the level of November 2022. Estimates of the current state of affairs (in surveys by the Central Bank, respondents evaluate the previous month) deteriorated in virtually the same way in terms of demand and output (the corresponding index for the month fell from minus 3.4 to minus 4.4 points), while expectations, both for the prospects for demand and output, for the next three months, on the contrary, increased (from 8.3 to 9.5 points) to the maximum of August 2022, before the start of “partial mobilization”.

Companies’ current estimates of demand in January were worse than in December (see chart). The situation in production deteriorated more than others due to the further narrowing of sales markets under the influence of increased sanctions, the Central Bank notes, the index indicates a collapse in estimates from minus 1.8 in November to minus 8.7 in December 2022. An equally noticeable collapse was observed in transport, where the BC index fell to its lowest level since the lockdowns. Improvement was recorded in construction, retail, and agriculture. Estimates of retailers remain the lowest due to sluggish consumer activity “in the face of general economic uncertainty,” the authors of the survey note.

Nevertheless, in the next three months, enterprises in most industries expect demand to expand. Optimism in construction has noticeably increased after its significant deterioration in October-December 2022. In processing, improvements in demand expectations were noted among producers of investment and intermediate goods, while deterioration was noted among manufacturers of products oriented to consumer demand.

The first January market surveys of industrialists by the Gaidar Institute (IEP) show that the rebound in demand that occurred in early 2023 was not as significant as companies expected (see Kommersant of January 27). And if the Central Bank surveys recorded a decrease in business price expectations in December 2022 for the first time in four months (in retail, the price expectations index even updated the 2022 low, dropping to the lowest value since the lockdowns), then the IEP found their new surge in industry in January .

Artem Chugunov