Russia sanctions affect sentiment

Russia sanctions affect sentiment

The MNI Russia Business Indicator declined 3.1 points to 51.5 in August from 54.6 in July as the imposition of tougher sanctions by the EU and US hit companies’ access to credit.

The Deutsche Börse Group survey revealed pressure on firms’ finances increased considerably in August as new sanctions reduced the ability of firms to raise finance abroad.

The financial position and the availability of credit indicators hit record lows in August, with the latter falling below the 50 expansion/contraction line for the first time in 16 months.

“This was the first survey following the downing of Malaysia Airlines flight MH17 and the imposition of new sectoral sanctions from the EU, the combination of which had a clear negative impact on sentiment,” said Philip Uglow, chief economist at MNI Indicators.

In July, the MNI report suggested that companies’ concerns surrounding sanctions had begun to fade, but warned that the downing of a Malaysia Airlines flight and the imposition of sectoral sanctions by the EU could see sentiment hurt again. This seems to have come to fruition in August.

The new Tier 3 sanctions have also hit Russian exporters with export orders falling back into contraction to the lowest since May, having hit a five month high in July.

While output managed to hold up, albeit at a reasonably low level, a fall in new orders to the lowest since December 2013 suggests this could be short-lived.

Analytics company FICO and the National Bureau of Credit Histories (NBKI), Russia's leading credit bureau, have also confirmed a fall Russian borrowers' credit health in recent months.

The FICO Credit Health Index had reached 98 points on July 1, the lowest level since the Index was initiated in 2008. The previous low point (100 points) was initiated in July 2009.

The FICO Credit Health Index measures Russia's overall credit health, based on the percentage of consumer loans and credit cards reported to NBKI as delinquent by more than 60 days.

In July 2014, 12.2 percent of Russian credit accounts were delinquent, compared with 10.07 percent in January 2014, and just 7.05 percent in January 2012, when the index reached its highest point.