"Business Ability to Adapt: Tackling Economic Challenges and Reduced Consumer Spending"
Sluggish advancement persists in the economic sector
It's evident that businesses in Russia are bracing for a less optimistic economic landscape, driven by various factors. Here's a breakdown of the current trends and forecasts:
Current Landscape
- Processed Sector Woes: Business confidence within the processing sector, including the automobile, furniture, and clothing industries, is taking a hit due to reduced consumer activity and slowing demand [1].
- Inflated Expectations: The Russian population's savings activity has led to an increase in funds on deposit (up 49% year-on-year in March) and a decline in the issuance of new consumer credit (down 59% year-on-year in March) [1].
- Exchange Rate Confusion: Enterprises in the processing industry have revised their price increase expectations for the coming months, a trend that may be attributed to a combination of exchange rate effects and decreasing demand [1].
- Global Pessimism: The overall assessment in the extraction sector is more pessimistic than in the processing sector, as it is directly influenced by global economic assessments [2].
Future Prospects
- Economic Chill: The economy is showing signs of a slowdown, a trend that may intensify each month if maintained, with a few exceptions being sectors with direct government support [2].
- Stimulating Supply: To address the economy's overheating, a brief interest rate hike and measures to stimulate supply are essential. The belief is that these measures should have eliminated potential economic shortfalls at this time, but Rosstat's data on capacity utilization at 61%, not 80% as the CB believes, indicates otherwise [2].
- Part-time Employment: Some enterprises are turning to part-time work, particularly in automobile and agricultural machinery manufacturing, and import supply has significantly decreased [2].
- Key Rate Adjustment: The key rate is expected to begin easing in the latter part of 2025, with a possible year-end rate of 14%. This easing may support lending and boost export-oriented sectors [3].
Despite the challenges, there's still reason for cautious optimism. The slowdown in economic activity is returning to more manageable rates following rapid growth, a phenomenon known as a "soft landing." However, it's crucial to confront inflation and maintain tight monetary conditions to align demand with supply capabilities [3].
[1] Gazprombank's Economic Forecasting Center[2] Institute of Economic Growth named after P.A. Stolypin[3] Sovcombank Chief Analyst[4] Rosstat data on retail trade[5] PSB's Analytics and Expertise Center.
- Gazprombank is revising price increase expectations for businesses in the processing sector due to a combination of exchange rate effects and decreasing demand, as indicated by their Economic Forecasting Center.
- Thanks to a soft landing, the slowdown in economic activity is returning to more manageable rates following rapid growth, according to Sovcombank's Chief Analyst.
- To combat economic overheating, the Institute of Economic Growth named after P.A. Stolypin suggests addressing it with brief interest rate hikes and measures to stimulate supply.
- In response to economic challenges and reduced consumer spending, some businesses in Russia, such as those in the automobile and agricultural machinery manufacturing sectors, are turning to part-time work, as shown by data from the Extraction and Processing sectors.
