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Fig. 2. Changes in output dynamics across industries in the 1st quarter of 2001 through 2003, industry = Forestry Power Ferrous Chemistry metallurgy metallurgy materials Non-ferrous Mechanical engineering engineering Construction Fuel industry Food industry Light industry The acceleration of growth in the export oriented raw materials sector was reflected via changes in the macrostructure of the economy. A specific feature of 2002 and early 2003 was the outpacing rate of growth in exports in comparison with the dynamics of domestic demand and imports in comparison with domestic production of goods. These developments are an evidence of changing roles of domestic demand and export as factors of economic growth.

While in 2001 and 2002 the growth in final household consumption determined the dynamics of domestic demand, in the beginning of this year there increased the role of the investment component. In the 1st quarter of 2003, the investment in fixed assets increased by 10.2 % as compared with 1.2 % registered in the respective period of the preceding year. The enhancement of investment activity was positively affected by the trend towards a gradual increase in profitability of production under the influence of growing proceeds of the export oriented sector of the economy, which had been registered since the second half of 2002. While in the first six months of 2002 profitability of production of industry made 13.7 %, by the end of the year it was estimated to make up to 16.3 %. As concerns oil extracting industry forming about of the aggregate profits of industry, there the profitability increased from 17.3 % in the first six months to 24.0 % registered in the second half of 2002. The surge of investment demand was primarily caused by export oriented industries and aimed to compensate for the lag in formation of finished stocks occurred in 2002.

The economic situation in the 1st quarter of 2003 formed under the impact of the favorable combination of internal and external factors of development. However, making estimates of further economic development there shall be taken into account a wide range of possible changes in the world economic situation.

O. Izryadnova IET Business Survey: Industry The new economic upsurge formed in early 2003 appears to abate. The first April results demonstrate that the Russias industry starts to brake its acceleration. The decelerating rates of growth in sales forces enterprises to check output, adjust assessments of finished stocks, and moderate optimism of forecasts.

The official Goskomstat data on the results of operations in the Russias industry in the first quarter of 2003 confirmed the operative data obtained in the course of surveys. The volume of industrial output grew by 6.0 %, while GDP increased by 6.4 %. Oil industry has been the locomotive of recovery (since the world oil prices were 1.5 times above the level registered in early 2002). The favorable price situation creates incentives for a growth in exports, and, correspondingly, output of ferrous metallurgy. These two industries form investment demand, which has revived mechanical engineering, where growth is evaluated to make 3.% in January through March of 2003. Goskomstat has registered growth in output across all industries with the exception of light, microbiological, and printing industries.

However, the first April results demonstrate that the Russias industry starts to brake its acceleration. The index of industrial optimism calculated by IET basing on the results of surveys lost in April almost all increase accumulated over two preceding months (see the Fig. below). The decrease occurred across all three indicators: changes in effective demand, evaluations of finished stocks, and expected changes in output.

----40 --1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 RUSSIAN INDICES OF INDUSTRIAL OPTIMISM IET METHODS EUROPEAN METHODS The intensity of changes in effective demand diminished by 10 balance points over the month. Only nonferrous metallurgy, chemistry, petrochemistry, and industry of construction materials could increase the rates of growth in cash sales. Across other industries the rates decelerated, while in forestry, woodworking, pulp and paper industry, and light industry, where there was registered a decline effective demand in absolute terms, the rates became negative.

% : -: --: --7/98 1/99 7/99 1/00 7/00 1/01 7/01 1/02 7/02 1/03 7/CHANGES IN EFFECTIVE DEMAND AND PROFITS DEMAND: EXPECTED DEMAND: REPORTED PROFITS: REPORTED Production has reacted to decelerating rates of growth in sales. In April, the intensity of growth in output decreased on the whole by 7 points. Similar trends were observed across the majority of industries. Only in industry of construction materials (seasonal factors!) and food industry surveys registered an acceleration of rates of growth in output.

However, more numerous reports about excessive accumulation of finished stocks demonstrate that deceleration of rates of growth in output was insufficient. Over the month, the balance of evaluations (above the norm below the norm) increased by 4 points reaching the record highs since May of 2002. The growth in balance occurred across all industries with the exception of metallurgy, although volumes of finished stocks diminished. The balance of changes in this indicator decreased from + 2 % to 8 % over the first quarter. In other words, enterprises could diminish finished stocks accumulated by the beginning of the year over the 1st quarter of 2003. However, the prospects of sales in the 2nd quarter do not look very hopeful, what resulted in growing number of reports above the norm. Deceleration of rates of growth in sales has also stopped positive trends observed in the profit dynamics.

The deceleration of the rates of decrease in profits stopped shortly after it had started. At present this indicator decreases at the same rate as in October through December of 2002. Real profits grew only in industry of construction materials.

However, on the whole enterprises could improve their financial and economic standing in comparison with the three preceding quarters. In April, the share of evaluations satisfactory grew up to 68 %, what is the historical maximum (see the Fig. Below). The historical minimum of this indicator (July of 1998) makes 19 %.

The forecasts of changes in demand lost at once 17 points in April. However, the positive balance was retained on the whole enterprises hope for a growth in cash sales even in May the month of massive vacations. An absolute decrease in sales is expected only in ferrous metallurgy, forestry complex, and light industry.

The plans relating to output have been similarly revised. In April, the optimism of respective forecasts dropped by 12 balance points. However, hopes for a growth in output prevail in the industry at large and across the majority of industries. An absolute decrease in output (because of the seasonal factors) is planned only in power engineering and forestry complex.

% 1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 1/CHANGES IN EVALUATIONS OF ECONOMIC STANDING OF ENTERPRISES SATISFACTORY BAD GOOD EXTREMELY BAD The forecasts of changes in employment in the Russias industry improved by 6 points over the quarter and showed practically zero balance. The share of reports about planned layoffs became equal to the share of reports about hiring of new employees. Previously, the plans of layoffs has prevailed over four quarters. A significant growth in employment is expected to occur in short time in chemistry, petrochemistry, mechanical engineering, and construction industry. In other industries, expectations of a decrease in employment prevail.

It is also expected that amounts of profits will continue to decline in the next few months. The balance of forecasts relating to this indicator was negative for the industry at large and across the majority of individual industries. An increase in profits may occur only in non-ferrous metallurgy and industry of construction materials. At the same time, it shall be noted that forecasts relating to such indicators are, as a rule, too optimistic.

S. Tsukhlo Foreign Trade According to the Central Bank of Russia, in February of 2003 the foreign trade turnover made US $ 14.7 billion, what is by 33.3 % above the figures registered in the preceding year. In February, the amount of export of goods grew by 40.6 % in comparison with the figures registered in February of 2002 up to US $ 9.686 billion, while imports grew by 21.4 % up to US $ 5.053 billion.

The significant increase in exports is determined by two factors: first, high export prices of staple fuel and energy commodities. Second, due to the growth in export prices there increased amounts of export of ferrous metals, primarily at the expense of rolled iron and unalloyed steel products. On the whole, the export of products of the fuel and energy complex increased almost 1.5 times in comparison with the figures registered in January through March of the preceding year, while export of metals and metal products increased by 20.9 %. The aggregate share of these commodity groups in the total exports to countries outside NIS made 78.7 % in the first two months of 2003.

In February of 2003, the situation on the world commodity markets continued to improve for Russian exporters. By the end of the month, oil prices have reached the record high in the last 12 years:

prices of futures contracts on the New York stock exchange made up to US $ 38.7 per barrel. The average price of Brent oil made US $ 32.1 per barrel (an increase by 57.9 % and 14.1 % in comparison with the figures registered in February of 2002 and January respectively), the average price of Urals oil US $ 30.per barrel (an increase by 62.8 % and 3.7 % respectively).

-1997 1998 1999 2000 2001 2002 Balance Export Import Source: RF Goskomstat Fig. 1. Main indicators of Russias foreign trade (in Rub. bln.) Natural gas prices grew considerably.

The situation on the market of ferrous metals was rather favorable in February of 2003. There was observed a growth in average prices of major types of rolled products. On the majority of key markets of non-ferrous metals, prices also grew. A factor behind the rise of prices was a decline in exchange stocks. By the end of February, the stocks of all metals made 2.93 million metric tons, as compared with 2.98 million metric tons registered in the beginning of the year and 3.09 million metric tons in mid-2002. There shall be noted that demand for non-ferrous metals grew in Asian countries, especially in China.

Table 1.

The average monthly world prices in February of the respective year 1996 1997 1998 1999 2000 2001 2002 Oil (Brent), USD / metric ton 126,1 155,8 109,2 78,3 195,9 198,0 147,8 233,Natural gas, USD / thous. m 78,7 71,2 72,7 101,0 201,5 80,7 227,Gasoline, USD / metric ton 192,6 233,0 181,3 187,3 333,5 315,1 220,0 373,Copper, USD / metric ton 2552,9 2392,0 1673,3 1414,8 1779,1 1811,4 1601,5 1705,Aluminum, USD / metric ton 1597,8 1567,7 1479 1188,1 1584,2 1602,1 1370,8 1428,Nickel, USD / metric ton 8091,5 7670,8 5462,2 4629,4 10269,6 6544,6 6042,7 8619,Source: calculated in accordance to the data presented by London Metal Exchange (UK), International Oil Exchange (London) Imports are still influenced by opposite factors. Ruble appreciation in relation to US dollar, which made, according to the Bank of Russia, 3.8 % in January through February (the maximum since July of 2000), stimulates Russias imports, while Ruble depreciation in relation to Euro (1.6 %) renders the purchase of goods in the EU less profitable. At the same time, the growth in effective demand of households and enterprises facilitates increase in imports.

In February of 2003, the rates of growth in export outpaced imports, what resulted in a considerable increase in the active balance of trade, which grew by 70.4 % up to US $ 4.6 billion in comparison with the figures registered in February of 2002.

In February of 2003, the amount of Russias trade vis--vis CIS member countries made US $ 2.46 billion.

Imports grew by 18.1 % in comparison with the figures registered in February of 2002 and made US $ 0.billion, while exports increased by 41.3 % and made US $ 1.48 billion.

According to the data concerning two first months of this year, the most considerable growth in industrial output among the CIS member countries in comparison with the figures registered in February of 2002 was observed in Tadzhikistan, where it made 13.4 %, in Ukrain the production grew by 10.8 %, while in .

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Kazakhstan the increase in output made 9.2 %. The amounts of Russias trade vis--vis these countries increased by 3 %, 41.7 %, and 23.1 % respectively.

Therefore, the tendency of the dependence of growth in amounts of foreign trade on positive dynamics of economic growth in CIS member countries was indirectly confirmed.

As concerns the sphere of bilateral relations between Russia and neighboring countries, this year there shall be noted the fact that Belorussia introduced special tax regimes of control over import of beer produced in Russia aimed to curb the respective exports. According to the new regulations, beer may be sold only from warehouses authorized by the tax authorities. In 2002, Russia increased the volumes of exported beer 1.times and imported about 3.5 decaliters.

Ukraine has again come out for the lifting of restrictions on the export of about 150 types of Ukrainian goods to Russia.

Besides, the Ukrainian party takes the view that profits from the growth in volumes of Russian exports may exceed losses suffered in relation to the abolishment of VAT on energy resources supplied by Russia.

At the same time Ukraine, trying to guarantee the future volumes of meet exports, came out for quotation of this product in spite of the fact that the Russias quotation of beef and pork imports did not concern CIS member countries. In 2002, Ukraine exported to Russia about 115 thousand metric tons of beef and its share in the Russian imports structure made 24 %.

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