4.1.4. Production dynamics and structure by types of economic activity Overcoming the negative consequences of 2008–2009 crisis and hitting the growth trajectory is determined by specific features of operations in certain sectors of the national economy and certain types of business. In general, the structure of restored economic growth of 2009–2011 period mirrors the post-crisis development pattern of 1998–2000, when the growth emerged in food products manufacturing and in mineral resources extraction, as well as other processing enterprises associated with processing hydrocarbons and other mineral resources. Then this growth rolled-out to sectors of industrial production. Speaking of the basic sectors, the biggest decrease of production was registered in H1 2009, when the decline made 13.9% to the level of the respective period of the preceding year. Starting from H2 due to recovery of external demand and due to government anti-crisis measures the situation began to improve and as of the end of the year the decline in industrial production was making only 9% of the preceding year level. Recovery of demand for energy in domestic and foreign markets resulted in mineral resources extraction growth in Q4 2009, which, in its turn, contributed to further development of processing manufacturing sectors. In H1 2010 the industrial output growth rate was 110.2%, including 105.8% for extraction and 141.3% for processing.
Starting from Q3 2010 some slowdown of the economic growth could be observed, caused by decline of export growth rate. In Q3 2010 industrial production index made 106.3%. However, in Q4 while rather high rates of investment growth and consumer market development were preserved, total industrial growth rate was 6.5%, including 9.9% in processing.
During 2011 the growth rates in industry slowed down, which was to a great extent determined by high base of the previous year. In 2011 industrial production index made 104.7%, including 101.9%, for mineral resources extraction, 106.5% in processing and 100.1% in producing and distributing electric energy, gas and water. In 2011 situation in industrial sector was unique – contrary to the entire period of 2000th when the growth was supported mainly by mineral resources extraction, last year the growth in industrial production took place mainly at the expense of processing sectors output growth.
As of the end of 2011 processing industries achieved the level of 2008, but the growth rates differ significantly by certain types of business. The recovery growth of 2010–identified structural misbalances of Russian industrial sector. On one hand, the sectors which are of strategic priority for Russian economy – i.e., mineral resources extraction; food products, leather and footwear manufacturing; coke and petroleum products production; chemical production; rubber and plastic goods manufacturing; transportation vehicles and equipment manufacturing – proved their sustainability and exceeded the pre-crisis output level in 2011.
On the other hand, some serious lag still exists in the recovery dynamics of mechanical engineering, electrical equipment manufacturing, metallurgy, timber production and construction materials manufacturing, where 2008 level has not been achieved yet.
Slow recovery rates in mechanical engineering constituted the dominating factor negatively impacting the level of business activity in adjacent sectors of manufacturing of structural materials and other producers’ goods.
Section The Real Sector of the Economy 2008 2009 2010 2011 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 -2008 2009 2010 -----mineral resources extraction processing electric energy, gas and water production total industrial output Fig. 7. Industrial growth rates by types of business and sectors in 2008–2011, % to similar period of the preceding year other manufacturing; 1.electrical equipment, transportation vehicles and electronics and optics equipment manufacturing; 2.manufacturing; -11. mechanical engineering; -12. metallurgy; -0.rubber and plastic goods manufacturing; 20. other non-metal goods production; -9. chemical production; 14. pulp and paper coke and petroleum products manufacturing; -5.production; 7. timber processign and leather, leather goods and wooden goods manufacturing; footwear manufacturing; 26.4. textile and clothing manufacturing; -3. food products manufacturing; 5.Processing; 0,-15,0 -10,0 -5,0 0,0 5,0 10,0 15,0 20,0 25,0 30,Source: Federal Statistics Service.
Fig. 8. Industrial growth rates by types of business in 2011, % to 2008 level We can discuss the specifics of post-crisis recovery in mechanical engineering only in connection with transportation vehicles manufacturing. This is determined by a big-scale government support of domestic passenger cars manufacturing and growth of foreign brands assembly lines output.
Situation with strategically important high-tech and mid-tech sectors (electrical equipment, electronics and optics manufacturing, as well as mechanical engineering) constituted one of the most serious problems. These sectors turned out to be the most vulnerable in the conditions of crisis, because the accumulated issues of poor compatibility of various types of engi RUSSIAN ECONOMY IN trends and outlooks neering products versus imported foreign analogues judging by “value-for-money”, as well as due to lack of capacity for manufacturing state-of-the-art machinery. All of those factors significantly impeded the recovery of domestic mechanical engineering. At the same time abrupt import shrinkage took place in the crisis conditions, while as over the course of the last several years it was import which significantly impacted the pattern of mechanical engineering development and machines market.
Overestimated market positions of domestic construction and investment sector during the period of intensive growth in 2006–2008, when no adequate measures were taken to improve efficiency of capital investment, resulted in unprecedented decline in construction and structural materials manufacturing, as well as in adjacent mechanical engineering and metallurgic enterprises.
In 2011 index of machines and equipment production versus 2010 made 109.5%. Such growth is associated with implementation of measures supporting domestic manufacturers.
Growth was observed for all sub-glasses of this group of goods. Utilizing the resources of OJSC Rosselkhozbank and OJSC Rosagroleasing for incentivizing the demand for Russian machines and equipment for agriculture and timber husbandry, as well as increase of capital investment in agriculture resulted in accelerated production of machinery for these businesses: 37.6% versus 2010. Implementation of long-term projects in technical modernization of metallurgic, mining, oil-and-gas enterprises, high degree of depreciation and obsolescence of equipment, as well as growth of mineral resources production in 2011 contributed to 23.0% growth of machines and equipment production (versus 2010). Consistent implementation of investment programs for technology modernization of companies provided for increased effective demand for process equipment, thus determining the growth of machines production in 2011 by 14.6%, and for mechanical equipment – by 6.9% versus 2010. Incentivizing customer demand utilizing loan mechanisms went along with increase in household appliances production by 8.8% versus 2010.
In 2011 electrical equipment, electronics and optics manufacturing grew by 5.1% versus 2010. It was not sufficient to compensate for the downfall of the preceding two years. In transportation vehicles and equipment production index was 124.6% versus 2010. That was mainly determined by financial and economic stabilization of key manufacturers and customers transportation vehicles and equipment after 2008–2009 crisis.
The railway cargo turnover growth during 2011 made 5.7% versus 2010 and provided for growth of production of railway machinery used for cargoes transportation. At the same time with passenger turnover at 2011 level manufacturing of passenger railcars decreased by 2.6% during the year.
In 2011 production of passenger cars grew by 44.5% versus 2010, and trucks production grew by 33.4%. Implementation of programs to incentivize the demand for automobiles (including old cars utilization and concessional car loans programs) was a significant driver of passenger cars production growth. For trucks production similar role was played by development of mechanisms for domestic vehicles sales via leasing and loans schemes. Implementation of such programs accounted for 11.7% and 10% of total sales at passenger cars and light commercial vehicles markets respectively. However, in 2011 the share of imported passenger cars and truck in 2011 grew even more versus 2010 (51.9%, and 87.5% respectively).
The lag in recovery of production is concentrated in metallurgy, timber industry and production of construction materials. In 2011 metals and metal ware production index made 102.9% versus the preceding year including for metallurgy – 105.2%, for metal ware producSection The Real Sector of the Economy tion – 98.2%. Non-ferrous metals production index in 2011 made 108.7% versus 2010. The growth of production yields in this sector is maintained due to growing final process stages output (118.9% versus 2010), utilized primarily in the domestic market.
In mid-2011 the overall situation in the non-ferrous metals markets got worse leading to suspension of export supplies, deterioration of financial and economic indicators of companies and enterprises’ performance slide down. Despite all of that, some rehabilitation of investment activities was observed in non-ferrous metallurgy compared to 2010 – specifically in non-ferrous ores production and concentration.
Production index in timber processing and wooden goods manufacturing in 2011 made 104.0% versus 2010; in pulp-and-paper manufacturing, publishing and printing – 101.8%; for timber harvesting – 103.1%. Business activity in this sector was supported by the state. Thus, the following subsidies were granted from the federal budget in 2011: partial compensation of costs incurred by Russian exporters of industrial products when paying interest on loans received in Russian credit institutions; subsidizing interest rates on loans received by timber industry enterprises from Russian credit organizations in 2008–2009 to set-up inter-seasonal stock of timber, feedstock and fuel; subsidizing interest rates on loans which Russian companies operating in agricultural and tractor vehicles manufacturing and in timber industry received from Russian credit institutions and from Vnesheconombank in 2008–2011 for technical re-equipment for 5 years.
Construction materials production index in 2011 made 109.3% versus the preceding year.
However, despite its high dynamics during the last two years, it remained 9% below the precrisis level of 2008. Simultaneously with expansion of scope of work in construction and growth of demand for construction materials in 2011 production growth for practically all types of goods of this sector was observed. Given the outrunning growth rates of construction materials domestic market capacity, the demand was satisfied at the expense of both rerouting cement supplies from external market to domestic market and import volumes growth.
The key macroeconomic trends analysis provides for the following conclusion: in Russian economy in general was able to recover from the crisis. In the environment of integration between Russian and global economy the 2009–2011 recovery growth illustrates the preserved dependency of growth rates on the global situation with commodities prices and demand for them in foreign markets. Respectively, quick recovery of production growth rates in export-oriented sector of mineral resources extraction provided incentives for development of domestic manufacturing sectors. However, the delayed response of domestic manufacturers to the domestic demand changes resulted in outrunning growth of import versus the domestic manufacturing recovery rates. The situation grew even more complicated due slow recovery of investment and financial crediting sectors. The inertial impact of these factors determines the system of growth limitations in the short-term perspective.
4.2. Russian industry in The section was prepared using data of monthly surveys conducted by the Gaidar Institute for Economic Policy (IEP) among managers of industrial enterprises since September 1992.
The surveys are based on the European harmonized methodology and encompass the entire territory of the Russian Federation. The size of the panel is about 1100 enterprises that employ over 15% of the total number of employed in industry. The panel is biased towards large enterprises in each of the selected sub-industries. The rate of response to questionnaires ranges from 65% to 70%.
RUSSIAN ECONOMY IN trends and outlooks The industrial survey questionnaire contains quite a small number of questions (not more than 15-20). They are of qualitative rather than quantitative nature. The simple formulation of questions and answers allows the respondents to fill in the forms quickly and without engaging other staff members or consulting documentation. It’s essential that the respondent at each enterprise should be an executive of the highest level possible who is fully aware of the situation at the enterprise and is directly involved in its management.
When analyzing the results of industrial surveys a specific derivative indicator is used which is termed “balance”. The balance is calculated as the difference between the percentage of respondents who answered “will grow” (or “above normal”) and the percentage of respondents who answered “will decrease” (or “below normal”). The resulting difference allows to present the distribution of answers to each question by one figure with “+” or “-” sign.
The balance is interpreted as the first derivative or the rate of the process. If the balance of responses to the question about expected change in prices has the “+” sign, it means that in the near future average prices will grow (e.g. the prevailing number of enterprises reported their intention to raise prices). The increase of balance from +10% to +17% over a month implies that average prices in industry will grow at a higher rate as the prevalence of enterprises anticipating their growth became more convincing. A negative balance is the sign of future reduction of average prices (more enterprises project to lower their prices). The changing of balance from -5% to -12% is interpreted as greater intensity of price decline.
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