In April, CUR decreased year-on-year by 1.5 percent, that is, at a rate larger than in February and March.

Yesterday two important data which are indicative of growth performance were released. 2012 growth was remarkably weak, at 2.2 percent. Growth rates decreased quarter on quarter throughout the year. The fourth quarter had the weakest growth figure.  Given the 2013 growth target of 4 percent and the slight increase in unemployment, the billion dollar question in everyone’s mind is whether or not recovery has begun.

I have addressed this question several times here. My opinion was that leading indicators had been giving mixed signals: some indicators signaled the start of recovery but some others implied that the first quarter of 2013 was no different than the fourth quarter of 2012. Until yesterday, a moderate recovery was of stronger probability although uncertainties remained. Unfortunately, the figures released yesterday do not augur well for the growth outlook.

There is a strong relationship in the same direction between capacity utilization ratio (CUR) and industrial output. The relationship is more evident for year-on-year figures and became even stronger in the second half of 2012. The outlook was similar in 2013 so far: CUR decreased year-on-year in February and March, but at a smaller degree. This positive outlook has proven transient, however. In April, CUR decreased year-on-year by 1.5 percent, that is, at a rate larger than in February and March.

We will most probably witness comments and arguments that the April CUR increased with seasonally adjusted figures. I recommend you to be suspicious about such assessments. True, seasonally adjusted figures reveal that CUR was higher in April than in March. But there are at least three reasons to be cautious. First and the most convincing one is that such month-on-month improvements were observed also in 2012, when growth rate stably decreased quarter-on-quarter. In April 2012, seasonally adjusted CUR increased month-on-month and at an even higher rate. Second, industrial output growth is related not with seasonally adjusted CUR but year-on-year CUR growth. Third, seasonally adjusted figures are not observed but estimated. Estimations are sensitive to the methods employed.

Confidence in decline

Real sector confidence index can be considered a leading indicator for private sector investment. Confidence of the real sector has been sluggish year-on-year since the last quarter of 2011. Different than the outlook of industrial output and CUR, however, the erosion in confidence stopped in the fourth quarter of 2012. In January and February, confidence recovered moderately but the improvement ceased in March. April figure was critical in this regard. Unfortunately, real sector confidence weakened year-on-year again in April, by 3.4 percent. In March, the cold comfort was that expectations for the next three months showed an improvement. There was no such improvement in April, however.

This commentary was published in Radikal daily on 25.04.2013