Optimism amongst Russia’s businesses picked up strongly in February, according to the latest IHS Markit Business Outlook survey, the consultant reported in a note on March 11.

“The net balance of companies expecting a rise in business activity (+19%) improved from a record low in October (+6%) and was among the highest over the past two years,” Markit said in a press release. “That said, among the countries for which comparable data are available, Russian firms were the least confident of a rise in output over the coming year (global average: +32%).”

Markit’s findings tally with the results of the latest Rosstat survey that also showed a strong surge in optimism amongst Russia’s businesses.

As bne IntelliNews reported, there was a remarkable upswing in business confidence in January, as confidence levels rose to -1, their highest level since May 2019 and marking a return to pre-coronacrisis levels.

Markit’s panel agrees, with optimism reportedly stemming from the prospect of new client acquisitions, access to new markets and hopes of an uptick in customer demand, as the coronavirus (COVID-19) pandemic begins to recede.

“Firms also noted expectations of a successful vaccine roll-out and a resulting pick-up in consumer spending,” said Markit.

As bne IntelliNews noted in a December cover story “Brighter Days”, the fading pandemic is anticipated to release a year’s worth of pent-up demand that should give economies around the world a major boost.

Risks remain

Although the mood is brightening, the pandemic is not over and there are still some potential bumps in the road.

Russian private sector firms said their headline net balance is still below the series average (+29%). And rising inflation is a problem. Consumer price inflation (CPI) accelerated to 5.7% in February, well ahead of the Central Bank of Russia (CBR) target level of 4.25%, which has brought the regulator’s easing cycle to an end and may lead to growth-throttling rate hikes this year.

February data signalled expectations of increases in both staff and non-staff costs among Russian private sector firms. The net balance of companies that foresee higher staffing costs rose from +17% last October to +21%. In contrast, the net balance of firms forecasting higher non-staff costs dipped to its lowest for a year (+15%), despite some raising concerns regarding greater raw materials prices.

Private sector firms moderated their expectations regarding future increases in selling prices. The lower net balance (+28% in February, down from +32% in October 2020) was led by reduced optimism among manufacturers regarding their ability to raise output charges over the next year.

The ongoing pandemic and associated restrictions were also highlighted as risks, with firms uncertain as to the longevity of the epidemic. The authorities recently said that Russia may reach the herd immunity level of 70% of the population with anti-bodies as soon as this August – well ahead of the rest of the world – although some 40% of Russians say they won’t take the vaccine.

At the sector level, manufacturers and service providers registered higher net balances of companies expecting greater activity over the coming year, reports Markit.

“Although goods producers were the more upbeat (+22%), service sector firms recorded the greatest optimism (+18%) since October 2019,” Markit said.

Investment and earnings

Companies were also more upbeat regarding investment opportunities, as new product developments were commonly identified as an opportunity to drive output growth, reports Markit. Although below their respective series averages, the net balances of firms anticipating greater capex and R&D spending increased in February to +9% and +11% respectively.

The net balance of companies expecting an increase in profit over the coming 12 months returned to positive territory in February, rising from -1% last October to +10%, reports Markit. Despite firms anticipating a rise in costs, increased optimism towards business activity supported sentiment regarding profitability.

Commenting on the Russia Business Outlook survey data, Siân Jones, senior economist at IHS Markit, said: “Russian private sector firms regained some optimism towards future business activity during February, with the net balance of companies anticipating higher output in a year’s time rebounding from last October’s record low. Hopes of a successful vaccine roll-out, a resulting uptick in demand and the acquisition of new clients reportedly supported confidence.

“That said, output expectations were still historically weak and concerns remained. Chief among these were hikes in supplier prices and the ongoing challenges stemming from the pandemic.

“On a more positive note, hiring intentions were at their highest for a year amid hopes of greater new sales as 2021 progresses. Opportunities for new product development also aided stronger expectations regarding capex and R&D spending for the year ahead.”