The transition of industrial production to stagnation in June-July should be replaced by an increase in output and demand

The transition of industrial production to stagnation in June-July, according to the expectations of companies, should be replaced in August by a noticeable increase in output and demand. However, the industry is already operating at peak capacity and with a record shortage of staff. Even if the surge in demand for Russian-made products jumps in August on the back of the devaluation of the ruble, it is unlikely to be long-lasting and sustainable.

The Gaidar Institute Industry Forecasts Index (IEP) in August 2023 records the restoration of optimism in the plans and forecasts of Russian enterprises after a pause in June-July, when growth stopped not only in expectations, but also in actual output (according to the Central Bank, we note that the August processing forecasts did not change) . This “has given hope to officials and analysts that the industry will avoid further heating. However, an increase in our composite forecast index in August by five points due to the growth of all initial indicators and exceeding the level of the pre-war February 2022 can put an end to such hopes, ”says Sergey Tsukhlo, the author of the estimates.

Recall that in June-July, official data and analysts’ estimates recorded a noticeable cooling in the dynamics of industrial production – the monthly rate was close to zero (see chart). “Recall that back in April, the results of industrial production exceeded the pre-crisis level and remain close to these values. It is now quite difficult to achieve significant growth month by month – capacity utilization is maximum. The Central Bank also pays attention to this: according to its estimates, in the second quarter of 2023 they were loaded by 80.9%, which is a historical maximum, ”say Raiffeisenbank analysts.

The Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) notes that in June the slowdown was mainly due to a decrease in intensity in production while maintaining growth in processing, while in July growth stopped in it. “Nevertheless, general industrial output dipped slightly – due to a slowdown in the decline in mining and an increase in output in the electric power industry and a number of other industries (see Kommersant of August 14).”

According to the IEP, “the logical basis for the growth of the index of forecasts” was the restoration of optimism in sales forecasts. In August, the balance of these expectations won back all the losses of June-July and updated the record recorded in May 2023. “Thus, the industry reasonably assumes that sales growth will continue in the face of high demand from the state during the NWO period and further tightening of sanctions,” concludes Mr. Tsukhlo. The recovery of optimism in demand forecasts also extended to production plans in August – according to the IEP, the indicator won back all the losses of June-July and also updated the May record. The value of the balance of output plans has become equal to the value of pre-war January 2022.

“The chronic shortage of personnel, which has escalated to record levels, is forcing the industry to maintain a high level of plans for hiring labor even during the period of temporary “cooling” of the economy, which, judging by the comments, fell on June-July,” the IEP believes, although many analysts have already they talk about a scenario of a confident cooling of the economy in the foreseeable future. In these months, the balance of hiring plans has decreased from 15 to 7 points. But the recovery in demand forecasts and production plans pushed up hiring plans as well – up to 22 points in August (an absolute record first recorded by IEP surveys in January-February 2022).

Against this background, the inflation expectations of Russian enterprises accelerated in August 2023 to a maximum since April 2022 (the Central Bank also records local highs of a surge in inflation expectations of companies, including industrial ones in August). The IEP estimates that the March 2022 peak is “not yet surpassed.”

Artem Chugunov