The Gaidar Institute recorded a three-point decline in the industrial optimism index

This year’s first estimates (as of January 19) of the Gaidar Institute’s Industrial Optimism Index (IEP) record its decline by three points from local maximums (since the beginning of 2022) achieved in the fourth quarter of 2023. The reason is a decrease in three of the four initial indicators: production forecasts, estimates of finished goods inventories and current sales volume. The latter indicator, we note, is declining against the backdrop of stagnation in current demand, which, however, has remained positive and surprisingly stable for the fourth month.

The IEP notes that simply the stability of sales growth has slightly disappointed industrialists. “In the context of massive government procurement for the needs of the Northern Military District and unprecedented import substitution, enterprises apparently counted on accelerating demand growth,” experts note. Therefore, the satisfaction of industrialists with current sales has decreased, and against this background, the excess inventory of finished products has increased (see graph). The IEP notes that after a chronic shortage of finished goods inventories since August 2020 and unsuccessful attempts to move to maintaining a manageable surplus in mid-2022 and mid-2023, maintaining this balance “in the positive” for the third month in a row should be regarded rather as a positive signal.

Although current output volumes remain positive, January industrial output plans made a significant negative contribution to the dynamics of the industrial optimism index – their balance decreased over the month from plus 24 to plus 16 points, that is, output growth in February-March, according to enterprises, will continue but it will be less intense.

Meanwhile, more and more analysts are inclined to believe that the dynamics of industrial production have reached their plateau and its further growth is unlikely. “Enterprises’ own financial resources still cannot fully act as a significant factor in increasing demand. The growth of enterprises’ turnover, which forms their revenue, slowed down in November; moreover, compared to October, it decreased by 1.6%. There has not been a reduction in the monthly pace since May. In the future, the growth rate of turnover is expected to decline, which will be facilitated by a slowdown in domestic demand and economic activity,” notes the January monitoring of current trends in the economy of the Association of Russian Banks.

Artem Chugunov