SERGEI TSUKHLO: “BUSINESS ACTIVITY INDEX HAS REACHED RECORD LEVELS”

In August 2023, the Gaidar Institute Index of Industry Forecasts saw the recovery of optimism of Russian enterprises’ plans and predictions after a pause in June-July when growth both in expectations and actual output came to a halt. This “gave government officials and analysts hope that the industry would escape further heating. However, growth of five points in our composite index of forecasts in August driven by a pickup in all initial indicators and excess thereof over the prewar February 2022 level may put an end to such hopes,” Sergei Tsukhlo believes.

It is noteworthy that in June-July the official data and analysts’ estimates pointed to a marked cooling of industrial production dynamics; monthly dynamics were close to zero.

According to the data of the Gaidar Institute, the recovery of optimism of sales forecasts became “the logical base for a rise in the forecast index.” In August, the balance of these expectations won back all the losses of June-July and updated the record registered in May 2023. “The industry reasonably expects sales growth to continue amid high demand on the part of the government during the special military operation (SMO) and further tightening of sanctions,” Serge Tsukhlo believes. Recovery of optimism of demand forecasts spread over to output plans in August, as well; according to the Gaidar Institute’s estimates this indicator won back all the losses of June-July and updated the record of May, too. The value of the balance of output plans became equal to that of the prewar January 2022.

“Chronic personnel shortages which amounted to record-high values make the industry retain a high level of labor recruitment plans even during the economy’s period of temporary “cooling” which, judging by comments, took place in June-July,” Gaidar Institute experts believe despite the fact that numerous analysts already speak about the scenario of a confident cooling of the economy in the foreseeable future. During these months, the balance of labor recruitment plans fell from 15 points to 7 points. But the recovery of demand forecasts and output plans pushed up labor recruitment plans to 22 points in August, as well (an absolute record registered by the IEP surveys for the first time in January-February 2022).

Against this background, Russian enterprises’ inflation expectations sped up in August 2023 to the maximum since April 2022. By estimates of the IEP’s experts, the peak of March 2022 “has not been surpassed yet.”