The financial situation of Russian companies is rapidly deteriorating. In January-February, they earned a total of 3.4 trillion rubles, according to Rosstat: this is the difference between the profits of profitable companies and the losses of unprofitable ones. This is 33.1% less than in the first two months of last year.
Company profits have not fallen at this rate since 2022; in the first year of the war, they fell by 34.5%, according to Rosstat data. The current downturn is one of the deepest in history, comparable only to 2017, 2014, and 2008, when profits fell by 30-37%. In 1996, profits fell by half, and 1998, after the Ministry of Finance defaulted on government bonds, was the only year in which businesses ended with a loss. Even in the pandemic-hit 2020, Russian companies' profits fell by less than a quarter.
Freedom Finance Global analyst Vladimir Chernov describes net profit as the final financial result of the entire economy, reflecting not only the dynamics of business revenues but also the scale of problems in individual sectors. Judging by the decline in net profit, problems are mounting in most industries unrelated to the war and housing and utilities sector. Profits in manufacturing fell almost in half (-45%), in mining by almost a third (-32%), and in agriculture by 38.5%. The share of profitable companies fell to 63.1% in January-February, compared to 68.1% a year earlier.
Business is under pressure from a slowing economy, high interest rates, and tax increases. In February, Russian business activity stopped growing for the first time since 2022: the business climate indicator, calculated by the Central Bank based on a survey of over 10,000 enterprises, stood at 0.2 points (zero separates growth from decline). At the beginning of the year, GDP declined year-on-year by 1.8% in January and by 1.1% in February.
Many industries and companies are experiencing problems due to weakening demand, increased tax burdens, rising costs, expensive loans, and a lack of working capital. Many service sector companies in large cities have encountered internet regulation issues for the first time this year, according to Olga Belenkaya, Head of Macroeconomic Analysis at Finam.
The situation was exacerbated by low oil prices: they were at rock bottom at the beginning of the year, while the ruble was at its peak. The external environment was negative, and apparently, the shipment of manufactured goods occurred in November-December, according to analysts at Tverdye Digits (at the end of last year, profits, by contrast, were abnormally high). The trend of declining company profits relative to GDP emerged in mid-2024, when the economy began to slow, according to their calculations.
The Institute of Economic Forecasting of the Russian Academy of Sciences (IEF RAS) identified declining profits as one of the key risks for the economy this year. This is the main investment resource, and investments have already declined: minus 2.3% last year, and the Ministry of Economic Development expects this decline to continue this year.
Companies facing declining profits are increasingly unable to pay each other. Overdue accounts receivable increased by 3.3% in February and by 22.1% year-on-year, reaching 8.45 trillion rubles, or almost 4% of GDP, according to Rosstat. As of March 1, 6.7% of all accounts receivable were overdue.
Chernov admits that the decline in profits will slow due to rising commodity prices. Due to the war in Iran, Russian oil prices have approached $100 per barrel, and metals and fertilizers are also becoming more expensive. If this situation continues, profits in export industries will begin to recover, and by the end of the year, overall profits may even be slightly higher than last year.
source: The Moscow Times https://archive.is/cmFKy