As part of structural and methodological adjustment to the concept of reporting the European Commission developed for the purpose of monitoring and comparing various Business cycles of the member states and EU member candidates, since October 2004 the Republic Development Bureau has been conducting monthly surveys of economic entities in manufacturing industry on the basis of which Business climate is analyzed and short-term forecasts of industrial development are produced.
With the view of comparatively analyzing developments of Business cycles in Serbia and EU countries as well as producing short-term forecasts of industrial development, in this publication the European Commission methodology for calculating the Business Climate Indicator BCI and Industrial Confidence Indicator ICI has been applied.
* Business Climate Indicator - BCI
* Industrial Confidence Indicator - ICI
* International ICI Mirror
* RDB Business-Cycle Clock
* Major Business Limitations
* Business Mirror
* Business Climate Indicator - BCI
In the second quarter of 2009 effects of the global economic crisis on deterioration of overall Business climate in manufacturing industry were most pronounced, which is also confirmed by negative developments of major macroeconomic indicators (a decline in industrial production, slowing down of the rise in real earnings, inflation, export and import as well as high fiscal deficit). Most qualitative assessments obtained on the basis of Survey results are negative and below the long-term average, but there are signs of improvement of the current Business situation and main indicators in June 2009.Business Climate Indicator (BCI) and index of industrial production (IPI) (chart)
Continual deterioration in assessment of Business conditions is illustrated through a constant fall in the Business Climate Indicator – BCI since the second half of 2008, and in Q2 2009 the lowest assessments were registered since October 2004 when the research started. Having said that, a somewhat less sharp fall of the BCI curve in Q2 relating to Q1 2009 might be interpreted as a sign of the beginning of recovery of Serbian economy. Statistical data show that the physical volume of manufacturing industry in Q2 2009 relative to Q2 2008 fell by 21.6%. A fall in industrial activity is in the first place a consequence of decreased demand, both domestic and export. Diminished foreign demand was caused by recession in developed economies, while domestic industry was particularly hit through reduced demand for basic metals, rubber and plastic products, and chemical industry products, which has been reflected in the fall in output in these sections that over the previous period have been the largest exporters and drivers of development and growth of overall industrial output. In addition, apart from the fall in export demand, decelerated growth of earnings and reduced credit activity of commercial banks led to reduction in domestic demand, which caused a fall in output in industrial sections that are not directly or dominantly dependant on exports. In the course of 2009 problems of payment of debts among national companies have been more prominent and, moreover, there were also problems of diminished domestic and foreign demand, which has all led to the generation of non-liquidity within national economy itself. In addition, national credit activity was also reduced due to precaution and caution of economic entities (credits extended to companies have been rising at a minimum rate, but much slower than in the previous year).
In the EU countries the trend of declining Business Climate Indicator has been stopped. Higher BCI reflects overall a more favourable Business situation, so one could expect that positive impulses coming from markets of European countries spill over to operations of Serbian companies in the next period (in June 26% of surveyed entrepreneurs expected an increase in export demand in the next quarter, and so 39% of them expected boosted production activity as well). Similarity between trends of BCI of Serbia and the EU is shown in the comparative line chart.
* Industrial Confidence Indicator - ICI
Industrial Confidence Indicator dropped by 3.5 percentage points in Q2 2009 in relation to the previous quarter (by 16.9 percentage points in relation to Q2 2008). However, in June 2009 the value of ICI was rising moderately and this interrupted a constant fall and the reaching of minimum values month in, month out.
The value of ICI was still at a very low level (by 15 percentage points below the long-term average). Despite a slight rise in June relative to May 2009, when the lowest indicator value was registered, the ICI value was down by 18 percentage points compared to June 2008. The largest influence on developments of ICI was exerted by expectations of businessmen regarding future output and assessments on order books, while assessments on developments of stocks were less significant.
Industrial confidence indicator in Serbia (chart)
The physical volume of industrial output in Q2 2009, in relation to Q2 2008, was down by 17.7%. The fall of output was registered in all three industrial sectors: of 9.7% in mining and quarrying, of 21.6% in manufacturing industry, and of 1.3% in electricity, gas and water supply. Manufacturing industry, being the largest and most important sector of industrial output (accounts for 75.5% of overall industry) and a leader and mainstay over the previous period, has become a sector that produced the poorest results.
Monthly seasonally adjusted data on the physical volume of manufacturing industry in April, May, and June 2009 remained on the same level. Therefore on the basis of seasonally adjusted values of ICI and the index of industrial production one can expect a less pronounced fall in the next period.
* International ICI Mirror
Recovery of the Industrial Confidence Indicator in June in the EU and Euro-zone was backed by improvement of assessments of production expectations and normalization in the level of stocks. After a more than year-long slide, manufacturers' order books finally showed some improvement. Still, both stocks of finished goods and production expectations remained below their long-term averages. A low level of industrial activity and the all-time low level of capacity utilization indicate recession expectations are still present.
In spite of moderate improvement in June in comparison with May 2009 (of 0.2 percentage points), the Industrial Confidence Indicator in Serbia is still negative and below the long-term average, and far below the level of June 2008.
Industrial Confidence Indicator - ICI (chart)
Of the six selected EU countries, the ICI fell in all of them in comparison with June 2008 (most in Czech Republic – by 30 percentage points, and least in Romania, by 15 percentage points). In comparison with May 2009 a decrease was registered in all the observed countries (the greatest in Czech Republic and Hungary, of 3 percentage points), except in Poland and Romania where the Indicator remained on the same level as in the previous two months after a record low level reached in March 2009.
* RDB Business-Cycle Clock
The latest data are indicative of strong recession tendencies present in Q2 2009. The worsening of overall Business climate in manufacturing industry is coupled with ever less optimistic Business expectations. Although assessment of the current Business situation is still negative, it did not deteriorate in the second quarter but Business expectations dropped to their all-time low.
Still, what is noticeable are somewhat more positive performances of survey indicators in June 2009, which might suggest that we will see more favourable Business results in the next period and the start of economy’s going out of recession.
Negative effects of the global financial crisis on development of domestic industry can be tracked by means of the RDB Business-Cycle Clock of manufacturing industry that since 2008 has been constantly deteriorating.
RDB Business-cycle clock in manufacturing (chart)
Surveyed enterprises assessed it that in Q2 2009 in relation to Q2 2008 their output went down. The crisis that manifested itself through diminished demand (both export and domestic) led to diminished liquidity (with as much as 38% of producers liquidity deteriorated). Given the smaller credit activity and investment (in particular foreign) non-liquidity will be rather pronounced in the future as well (28% of enterprises anticipate further deterioration of liquidity in the next quarter), which will further reduce insufficient demand. Deceleration of the rate of demand growth is a consequence of deceleration of loan activity and a real rise in earnings (in Q2 2009 in relation to Q1 2009 average net earnings was up in real terms by 2.7%). Selling prices are going up (largely owing to the rise in prices in food industry) but are below the average value. Due to weak demand and contracted payment conditions, producers expect that their prices will continue to rise in the next quarter too. In Q3 2009 one can expect further growth of output along with a decline in the number of employees: as much as 28% of surveyed producers plan to reduce the number of workers. In comparison with the same period last year, expectations are at a much lower level.
* Major Business Limitations
Business activity of industrial enterprises still goes hand in hand with serious limitations. In June 2009 43% of producers encountered problems both on the supply and demand side, while only 14% of surveyed businessmen face no major operating problems (balance). 18% of producers as the main Business limitation named insufficient demand, and 25% Business burdens that limit supply (61% of companies face a lack of funds, 33% have problems with low prices, and 6% of producers see a lack of equipment as their main Business limitation).
Basic business limitations in Manufacturing (chart)
* Business Mirror
| Manufacturing | since 10-2004 | Q2 2009 | ||||||
| min | date | average | mаx | date | Apr. | May | June | |
| 1. Current Business situation | -43.0 | 02-09 | -10.0 | 15.2 | 01-07 | -40.7 | -40.9 | -38.9 |
| 2. Inventories | -16.3 | 05-09 | -4.6 | 17.4 | 05-07 | -8.8 | -8.3 | -5.3 |
| 3. Current order book | -64.2 | 05-09 | -36.6 | -24.2 | 04-07 | -56.1 | -64.2 | -60.7 |
| 4. Output | -27.8 | 02-09 | 11.1 | 37.4 | 05-05 | -15.7 | -10.7 | -16.9 |
| 5. Demand | -33.3 | 03-09 | 10.3 | 29.8 | 03-08 | -23.2 | -8.8 | -11.9 |
| 6. Outstanding orders | -34.0 | 05-09 | -17.0 | -4.0 | 02-07 | -32.7 | -34.0 | -21.7 |
| 7. Selling prices | -12.4 | 03-09 | 7.8 | 23.8 | 01-06 | -0.9 | 5.9 | 5.7 |
| 8. Liquidity | -67.2 | 03-09 | -10.2 | 8.0 | 09-07 | -39.7 | -40.9 | -43.6 |
| 9. Total liabilities | -3.6 | 01-09 | 20.3 | 42.2 | 01-09 | 39.9 | 30.5 | 30.9 |
| 10. Degree of capacity utilization | 51.6 | 03-09 | 57.9 | 70.0 | 06-05 | 56.2 | 53.5 | 52.8 |
| 11. Expected output | 15.4 | 04-09 | 43.9 | 64.9 | 10-06 | 15.4 | 18.5 | 17.3 |
| 12. Expected prices | 1.1 | 04-09 | 17.3 | 37.7 | 04-06 | 8.5 | 5.2 | 9.5 |
| 13. Expected exports | 6.0 | 06-09 | 35.1 | 52.9 | 11-04 | 16.9 | 16.6 | 6.0 |
| 14. Expected employment | -27.9 | 06-09 | -6.6 | 7.0 | 03-08 | -22.9 | -19.2 | -27.9 |
| 15. Expected liquidity | -7.2 | 06-09 | 31.1 | 54.6 | 12-07 | -0.4 | 0.5 | -7.2 |
| 16. Business expectations | 2.4 | 06-09 | 43.4 | 60.5 | 12-07 | 9.1 | 7.3 | 2.4 |
| Business Climate index - BCI | -2.8 | 06-09 | 0.0 | 0.9 | 12-06 | -2.5 | -2.6 | -2.8 |
| Industrial Confidence Indicator - ICI | -12.7 | 06-09 | 4.0 | 12.0 | 12-07 | -10.6 | -12.5 | -12.7 |
| * Balances, computed from monthly survey responses (seasonally adjusted by means of the software Demetra 2.0) have a percentage value between -100 and 100. | ||||||||
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RDB Business Trend Perspectives Q2 2009.pdf, 20 Kb
