Positive demand dynamics bolster industrial sector output
According to Gaidar Institute's business surveys, enterprises reported that the start of 4Q 2014 was no less positive for them than the end of the previous quarter. Good demand dynamics, successful control over the stock of finished products allowed the industrial sector to keep up industrial growth in October too.
The structure of output constraints supports positive assessments of the situation, but also shows the relevance of resource constraints, of which the shortage of human resources and working capital is most commonly encountered.
The demand dynamics in 2014 show a movement which has been odd and positive for the past few years. Basic data show that sales rates changed within a very narrow band since January, with no deterioration of the same value observed earlier in Q4, which was typical of the preceding post-crisis years. Deseasoning provides good results for the balance of difference in demand at the turn of the current year. This development was highly acclaimed by manufacturers: satisfaction with the demand in August-October was the strongest since the turn of 2011.
Furthermore, enterprises' projections showed better sustainability and positive outlooks in 2014. Initial balances of expectations were positive up to and including September, although late in Q3 the industrial sector saw more demand contraction forecasts. And it was not until October this year that demand contraction expectations became to prevail over growth in the demand. However, deseasoning showed that forecasts tended to stay positive.
The industrial output dynamics in H2 2014 also differ for the better vs. the output dynamics observed in the previous years. The initial balance of the indicator (growth rate) is more stable and much higher vs. the same period of 2012–2013. And deseasoning showed stabilized output growth rates at the two-year highest level. Therefore, definitely the best demand dynamics allow the industrial sector to bolster output, which again may come as a surprise for bureaucrats and analysts upon the publication of official statistics in October.
Enterprises' output targets in 2014 definitely differ for the better too. After the traditional rise of optimism in the first quarter and decline of the same by April, this indicator stabilized in the period of May to September at levels untypical of those observed in 2012–2013. And, it was not until October that the indicator showed weakening optimism which used to emerge as early as August.
Late in 2014, the employment dynamics in the Russian industrial sector were less pessimistic than in the previous years. First, the balance of actual changes shows less intensive layoffs. Staff redundancy hasn't stopped yet. Second, enterprises' projections in October experienced a decline not so strong as it used to be during the same month of the previous years. However, the human resources issue is still the most critical for the Russian industrial sector in the short- and mid-term perspectives.
Tsukhlo S. V., Ph.D. in Economics, Head of Business Surveys Laboratory