Business confidence in construction industry in Russia still on the wane

2010-03-09

In the fourth quarter of 2009, the index which shows business confidence in the construction industry fell by 1.1 p.p. in comparison with Q3 2009 and stayed at -21%. The number of employees in the industry fell, whereas the portfolio of orders and capacity use rate remained at the level of the previous quarter.

According to the latest survey carried out among managers of Russian construction companies, compiled by the Economic Situation Research Centre of the Government of the Russian Federation, the index of business confidence in the construction industry fell in Q4 2009 by 15 p.p. in comparison with the equivalent period a year before and stood at -21%. However, when compared with Q1 2009, the indicator fell only by 3 p.p. which shows that the deterioration which started in Q2 2008, when the indicator stood at +5%, slowed significantly last year. In Q4 2009, positive indicator values were reported only in the Adygeya, Dagestan and Tatarstan republics, in the Kamchatka Territory and the Chukotka Autonomous District. The lowest construction confidence index figure (-58%) was recorded in the Kemerovo Province.
Only 4% of the construction company managers surveyed assessed the economic situation in the construction industry in the fourth quarter of the year as favourable. 27% of those canvassed viewed the matter in a more negative light and described it as unsatisfactory. The same assessments were given with regard to the previous quarter. The prognosis for the first three months of 2010 is still very cautious: 80% of the managers surveyed by Rosstat do not expect the situation to change, 12% think that it will become worse, and only 8% of those canvassed expect it to improve.
The average capacity utilisation rate of construction companies in Russia in Q4 2009 remained at the level of the last two quarters - 57%, which is the lowest rate seen in the last ten years. The low level of portfolio of orders also did not change in comparison with Q3 2009, when the index stood at -34%. However, when compared with the first quarter of last year, the indicator rose slightly, by 1.1 p.p.
The index of the employment levels in the industry fell by 2 p.p. (to -22%) in comparison with Q3 2009. When asked about expectations for Q1 2010, 86% of construction company managers did not expect the number of employees in the industry to fall, and 6% of them expect it to rise.
The insolvency of clients was cited by 43% of respondents as the main restriction on the business activities of construction organisations in Q4 2009. Interestingly, the proportion of companies which cited this factor had barely changed during the year (in Q1 2009 it was 44%), whereas in Q4 2008 only 27% of the companies surveyed regarded this barrier as the most important. Other problems identified by companies in Q4 2009 include high levels of taxation (40%), fierce competition (32%) and the prohibitive costs of building materials and components (31%).