Financial market indicators/indices Month September October November December January* Monthly inflation 0,1% 0,3% 0,6% 0,8% 2,2% Estimated annual inflation given the current month trend 1,21% 3,66% 7,44% 10,03% 30,0%% Russian Central Bank refinancing rate 11,5% 11% 11% 11% 10,5% Average yield to maturity for all OFZ bond issues (% per 6,07% 6,00% 5,97% 5,93% annum) Monthly turnover on the GKO-OFZ market (RUR bln) 45,32 24,36 16,95 45,Minfin bond yield to maturity at end of month (% per annum):
tranche 5 5,54% 5,18% 5,38% 5,47% 6,1% tranche 7 5,43% 5,50% 5,42% 5,41% 5,5% tranche 8 4,22% 4,17% 5,30% 5,57% 5,6% Eurobond yield to maturity at the end of month (% per an- num):
2007 5,35% 5,47% 5,28% 5,04% 5,5% 2010 5,05% 5,24% 5,43% 5,70% 5,6% 2018 5,80% 5,87% 5,69% 5,64% 5,9% 2028 6,13% 6,15% 6,03% 5,96% 6,2% 2030 5,70% 5,71% 5,52% 5,50% 5,7% Interbank credit-MIACR rate (% per annum at end of month) 4,75% 9,82% 7,21% 3,65% 5,0% on 1-day loans Official RUR to USD exchange rate at the end of month 26,7799 26,7477 26,3147 26,3311 26,(RUR/USD) Official RUR to Euro exchange rate at the end of month 33,9783 34,0284 34,6775 34,6965 34,(RUR/EUR) Change in the official RUR/USD exchange rate in one month 0,16% -0,12% -1,62% 0,06% 0,77% (%) Change in the official RUR/Euro exchange rate in one month -0,97% 0,15% 1,91% 0,05% -0,88% (%) RTS stock market turnover in one month (in USD mln, for 759,60 907,19 1175,61 1094,42 880,shares on the RTS index list) RTS-1 index at the end of month 1563,19 1613,57 1776,68 1921,92 1819,Change in RTS-1 index in one month (%) -5,81% 3,22% 10,11% 8,17% -5,3% * Estimated data D. Polevoy USD/EURO 01.11.01.12.31.12.30.01.01.03.31.03.30.04.30.05.29.06.29.07.28.08.27.09.126.96.36.199.26.12.25.01.Real Economy Sector: Trends and Factors Investments in the fixed assets in 2006 increased by 13.5% against 10.7% in the previous year, workload in construction grew up, correspondingly, by 15.7% against 10.5%, implementation of living quarters - by 15.2% against 6.1% while GDP grew up by 6.7% against 6.4%. While the rate of the increase of the commercial production was at the level of 3.9%, the increase in the processing production output was equal to 4.4% against 5.7% in the preceding year and in the extractive industries production – to 2.3% against 1.3%.
The characteristic feature of 2006 was the acceleration of electricity, gas and water production and distribution growth rates up to 4.2% against 1.2% in 2005.
The growth of discrepancy between the rates of labor productivity and wages in favor of the latter had the negative impact on the economic dynamics indices. Within the period of 2000-2006 real accrued wages increased 2.57 times while the labor productivity grew up 1.49 times.
In 2006 the economic situation emerged in the environment of domestic investments’ and consumer demand’s dynamics intensification. The comparative by-factor analysis of the GDP dynamics demonstrated that it was the investment sphere that reacted most acutely on the volume and dynamics change of export revenues. The sharp increase in investment activity in 2003-2006 coincided with the dynamic growth of goods export revenue. In 2006 investments in the fixed assets grew up by 13.5% against 10.7% in the preceding year, the workload in construction - by 15.7% against 10.5%, correspondingly, and the implementation of living quarters - by 15.2% against 6.1% while GDP increased by 6.7% against 6.4%. The exceptionally favorable combination of the domestic business activity and price situation at the world market of the raw materials accounted for intensive increase in the scale of gross savings.
In 2006 under the influence of increasing economy export revenues on the one hand and the decrease in household expenditures on the other hand, the gross national savings were 35.3% and remained approximately at the level of the preceding year. However, despite the increasing volume of the gross national savings, the investment sphere was unaffected. The share of investments in the fixed assets in GDP was 16.5% and remained at the average level of 1999-2005 years.
2001 2002 2003 2004 2005 GDP households expenditures investments in the fixed assets Source: Federal State Statistics Service Figure 1.The Change in the GDP Dynamics by the Components of the Final Consumption in 2001-2006, as % of the Corresponding Quarter of the Preceding Year I I I I I I I II I I I II I I I I I I I I II I I I II I I I I I I I V V Y V V Y I I I I I I The positive dynamics of the final consumption was one of the chief factors of domestic market development. The increase in the final consumption scales proceeded in the environment of relatively steady sustention of the ratio between households’ consumption and social transfers, received from the governmental institutions and non-commercial organizations. In 2006 the share of expenditures for final consumption in the structure of the GDP use was equal to 66,6%. Transformation shift of the GDP use was also accounted for by the drop in growth rates of net export by 14.3% in comparison with the preceding year.
Table Structure of the GDP Use in 1998-2006, in % versus the Total 2001 2002 2003 2004 2005 2006* Gross domestic product 100 100 100,0 100 100 Expenditures on the final consumption 65,8 68,9 68,1 66,9 66,4 66,including:
gross accumulation of the fixed assets 18,9 17,9 18,4 18,4 17,8 18,Net export of goods and services 12,7 10,8 11,3 12,2 13,6 12,*) preliminary data Source: Federal State Statistics Service The dynamic growth of the consumer demand is maintained by the increase of population’s income. The real income of the population in 2006 increased by 10.0%, real wage – by 13.5%, real volume of the granted pensions – by 5.7%.
Structural shifts in cash income formation were accompanied by the change in population distribution according to average per capita income. In 2006 average per capita income in comparison with the preceding year growing by 123.5% and the nominal amount of wages - by 124.5%, the share of population with the average per capita income above 12000 RUR increased by 8.5 percentage points, in the range of 12000-RUR - by 3.6 percentage points, and with the income below 6000 RUR decreased more than by 12.0 percentage points. Along with the increase in population income the steady decrease in poverty level was observed. The share of people with cash income below subsistence wage in 2006 reduced to 22.5 million of people, which was equal to 15.8% of the total population in comparison with 25.2 million of people (17.6%) in 2004 and 42.3 million of people (29.0%) in 2000. However this has not reduced the social and economic differentiation of population by income. It is estimated, that in 2006 the fund coefficient, which characterizes the ratio of the average values of the highest and the lowest income of the corresponding decile groups of the population, was equal to 15.1 times against 14.8 times in 2005 and 14.3 times in 2003. Gini coefficient, which characterizes the income concentration, grew up to 0.408 against 0.404 in 2005 and 0.400 in 2003.
The character of income distribution also defined the specificity of the current expenditure dynamics and the level of savings in the household sector. The increase in population’s purchasing capacity determined the sustention of high rates of the retail trade turnover growth. In 2006, as well as in the preceding years, it was the anticipating growth of the non-food goods and paid services market that had the prevailing influence on the increase of the commodity turnover. While the retail trade turnover increased by 13.0%, the growth of food sales was equal to 10.2%, and of non-food sales - to 15.6%. In 2006 the increase in services demand had a sufficient effect on the dynamics of the consumption demand. In comparison with 2005 the volume of the paid services to population increased by 8.1% in the environment of the prices and rates for paid services to population growth slowdown to 13.9% against 21.0% in 2005 and 17.7% in 2004.
The change in population demand structure and the increase in share of durable non-food products sales and real estate sales, as well as the increase in the demand for services livened up the development of consumer’s crediting. The volume of credits, given to individuals, has grown by 1.52 times since the beginning of the year. In 2006 the share of credits to individuals was equal to 23.0% of the total amount of credits, given by lending agencies, in comparison with 18.9% in 2005 and 9.8% in 2003.
Since the 2nd half year of 2005 along with the acceleration of active population income growth rates the tendency to restore inclination towards savings has revealed itself. The high investment activity of population in housing construction was the factor, which limited the use of savings for current consumption. In 2006 implementation of living quarters grew up by 13.1% against 9.3% in 2005 and 5.9% in 2004. The influence of this factor on the way of population income use was determined by the level of population income and prices for habitation as well as general economic situation and investment environment.
purchase of payment and fees 0 increase( +) decrease(- savings exchange goods purchase settlement service payment )- of cash 2004 2005 Figure 2. Structure of Population Cash Income Use in 2004-2006 as % vs the Total It is noteworthy that the increase in payment of wage earners in income structure proceeded in the environment of the sustention of high differentiation of the average wages by the kinds of economic activity. In industry the degree of wages differentiation was determined by greater gap in the rates of labour renumeration in extractive and processing industry. The nominal added wages in minerals’ extraction was 2.2 times higher than the average level of economy, including fuel resources extraction - 2.4 times higher. In processing industries the wages were equal to 96% of the average in the economy and 46.2% of the figures for extraction industries. The exceeding of the average added wages figure by 2.1 and 2.4 times was observed at manufactures, connected with processing and transportation of fuel mineral resources. In education and public health service the average wages were equal to 63-75% of the average in the economy, in transportation – to 130% and in financial activity – to 260%. The characteristic features of renumeration of labor by kinds of economic activities had a substantial impact on the incomes and expenditures structure formation, population consumer demand as well as on the nature of employment and labor resources in the economy.
Only 8% in the structure of the employed population account for people who do not work for a wage: employers, who attract employees on a regular base to work at their business, self-employed people. This defined, correspondingly, the character of the formation of population income structure and the GDP. More than 66.1% of population income and 43.0% of GDP accounted for the renumeration of labor share of those, who work for wages. The transformational shifts in business environment assisted the increase in small business activity. The number of people who work at small-scale enterprises reached 11.3% of the total number of people, employed in the economy. In the structure of the population cash income the share of the incomes from the entrepreneur’s activity and property in 2006 was 19.3 % against below 20.3% in 2005 and 17.1% in 2002.
Table The Structure of Population Cash Income 1999-2006, as % versus the total 2004 2001 2002 2003 2006* Cash income - total 100 100 100 100 100 Renumeration of labor, including hidden wages 64,6 65,8 63,9 64,9 64,8 66,Entrepreneur’s activity income 12,6 11,9 12,0 11,7 11,4 11,Property income 5,7 5,2 7,8 8,3 8,9 7,Social payments 15,2 15,2 14,1 12,9 12,9 12,Other income 1,9 1,9 2,2 2,2 2,0 1,*) preliminary data source: Federal State Statistics Service The level and the share of wages of emloyers in the structure of the GDP had a prevailing influence on the social profile. Along with the restoration of economic growth important changes were observed in the labor market. The typical aspect of the period of 2001-2006 was the tendency for the growth of the demand in labor force. Average annual number of the employed in the economy process in 2006 was equal to 68. million of people in comparison with 63.8 millions of people in 1998. It is to be noted, that the change in labor-force demand was determined by the shift of the employment to the kinds of activities which provide market services. The formation of this tendency at the initial stage of the economic growth restoration made a powerful effect on the life quality and gave a stimulus for service sphere development growth rate acceleration. However against the background of industry growth rate slowing down to 3.9% in comparison with 4.0% in 2005 and 8.3% in 2004 and import supply acceleration up to 29.6% this provoked a trend to the decrease in the average annual staff number in industry. In past three years the decrease in employment was observed in almost all branches of industry, the decrease in the number of workplaces being the most intensive in the processing industries. In the environment of the existing labor and fixed assets use efficiency the gap between the growth rates of extraction and processing industries deepened, which finally provoked the formation of the tendency for industry economic growth slowing down. In 2006 the increase in processing industries was 4.4% against 5.7% in the preceding year and in extraction industries – 2.3% against 1.3%.
The distinct feature of 2006 consisted in energy, gas and water production and distribution rates acceleration up to 4.2% against 1.2% in 2005.
The growth of discrepancy between the rate of labor productivity and wages in favor of the latter had the negative impact on the economic dynamics indices. In the period of 2000-2006 real accrued wages increased by 2.57 times while the labor productivity grew up by 1.49 times. This process of renumeration of labour growth was accompanied by the decrease in gross economy profit in the structure of the GDP from 42.7% in 2000 to 36.5% in 2006. The low efficiency in factors of production use is one of the main causes of the decrease in competitive advantages of Russian goods.
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