Russian business sentiment picked up in July to the highest in three months, as the initial impact of the sanctions has faded, although it was still below the level seen at the start of 2014.
The MNI Russia Business Indicator rose by 4.1 points to 54.6 in July from 50.5 in June. Our survey showed Russian companies were initially hit when the first round of sanctions were imposed but the July data points to some resilience. The survey was taken before Malaysia Airlines flight MH17 was downed over Ukraine, and a step up in sanctions, especially more aggressive Tier 3 sectoral sanctions, would no doubt have a negative impact on sentiment.
New Orders increased, while Export Orders moved back above the 50 mark for the first time since February. Against this, Production slumped to a seven month low in July with companies still facing a weak economic backdrop. Meanwhile Employment fell for the second consecutive month to just above the breakeven 50 level.
The rouble’s sharp decline since the Ukraine crisis has been taken negatively by our panel of companies, with the Effect of Rouble Exchange Rate Indicator falling to 50.0 in July, the lowest since August 2013.
Commenting on the latest survey, Philip Uglow, Chief Economist of MNI Indicators said, “Russian companies haven’t quite shrugged off the sanctions already in place but their impact has certainly waned. This of course could change dramatically should the EU plump for more stringent action.”
“While sentiment has improved in July, the outlook for the economy over the rest of the year remains gloomy. A combination of high inflation and high interest rates suggests the economy will barely grow in 2014 and meaningful sanctions would likely put growth in negative territory.”