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4.2.2. Dynamics of demand and output At the beginning of the year the volumes of sales traditionally demonstrated negative dynamics according to the initial (prior to adjustment for seasonality) data. The growth rates (the balance of change) lost 21 points and fell deep below zero, which, however, was the pattern observed in all the non-crisis years and became habitual for enterprises. Adjustment for the seasonal and calendar factors leveled off the situation: sales of industrial products continued growing. On the contrary, demand projections in January seriously improved. Within a month the balance of initial responses increased by 32 points which is also a normal change for this indicator. Adjustment for seasonality flattened out the January surge of optimism and as a result a slight worsening of projections compared with December expectations was registered.

The dynamics of output in the early 2011 was also quite typical. The initial data indicated the reverse from December growth to January decline with the balance decreasing by 45 points at a time. However, adjustment for seasonality flattened out this sharp swing in output dynamics: just a slowing down of growth took place in January. Production projections Section The Real Sector of the Economy also underwent expectable changes in January: the pessimism of November-December was superseded by high optimism traditional for the start of a year. When adjusted for seasonality, no principal changes were traced in enterprises projections: as before, industry expected quite acceptable (by crisis standards) rates of production growth in February-March.

The February data demonstrated only the halting of decrease in demand but not its growth.

Adjustment for seasonality also revealed no growth of sales in February. Demand projections (initial) in February improved by 10 more points and reached a maximum for the pre-crisis and crisis period. No similar prevalence of sales growth expectations over their decline expectations had been registered since July 2008. Adjustment for seasonality flattened out the optimism of initial expectations down to the average level of the 5 preceding months: beginning from October 2010 the most stable and optimistic projections for demand growth were registered in industry.

In February the initial output growth rates (in case of surveys the balance of responses) restored after the January decrease up to the average indicators of the IV quarter of 2010. Adjustment for seasonality left this result unchanged. According to estimates of enterprises, production growth rates remained at approximately the same level since May 2010. Initial production projections grew by 15 points in February and also attained a maximum for the precrisis and crisis period. Growth of output was expected in all branches, the most intensive one in ferrous metallurgy and construction materials industry. Adjustment for seasonality leveled off the January-February soaring of projections down to the level typical for previous months.

In March the formal increase of initial sales growth rates up to +9 points from +3 points in February was flattened out by adjustment for seasonality: the growth of sales at the end of the quarter apparently ceased. So, the balance of demand change (growth rates) lost 9 points from the start of the year and became zero after having been apparently positive. No similar slowdown in recovery from the crisis had been ever recorded. Negative dynamics of sales affected projections made for them. After the most optimistic crisis expectations recorded in December 2010, by the end of the I quarter of 2011 the balance of projections lost 7 points and fell to an 8-month minimum.

However, the rates of output change still demonstrated (albeit slow) resumption of production growth after the traditional January drop and the return to average levels recorded in the previous 11 months. As a result the divergence between output and demand dynamics grew bigger. In March 2011 only 58% of enterprises reported similar changes in sales and output (in January 65%, in February 62%) while at 35% of enterprises output outpaced demand (in January at 14% of enterprises, in February at 28%). Such a low level of the first indicator and such a high level of the second had not been observed in the Russian industry since April 2008. Meantime production projections of enterprises indicated that they were not ready to bring output growth rates in compliance with demand dynamics. In March the share of factories where the projected increase of output exceeded the increase of demand projections, reached 25% which was an 8-month maximum. And only 68% of enterprises were ready to change output in line with the expected demand dynamics (a minimum for the same months).

In April the initial rates of demand growth fell down to zero after the crisis record they set in March, i.e. sales ceased growing. Adjustment for seasonality further worsened the April indicators that consequently showed an absolute reduction of demand by -7 points (see Fig. 17).

Such an intensive decrease of demand for industrial products had not been registered by sur RUSSIAN ECONOMY IN trends and outlooks veys since January 2010. Similar radical revisions took place in sales projections. According to initial data, by April they fell down to +12 points following the previous crisis record of +31 points that was registered in February 2011. Adjustment for the seasonal and calendar factors indicated stabilization of sales projections at +4 points which was a 15-month minimum.

% PROJECTED ACTUAL ---11/-1/05 1/06 1/07 1/08 1/09 1/10 1/11 1/Fig. 17. Change of solvent demand adjusted for seasonality (balance = % growth - % decrease) In May the lowering of demand for industrial products continued. The seasonally adjusted data displayed a decrease at the rate of -5 points. As a result sales growth rates lost 13 points from December 2010, i.e. an apparent growth of demand was superseded by its equally apparent reduction. But enterprises expected that in the following months this negative trend would be reversed. In May output growth rates (according to initial data) continued falling but remained positive, i.e. production went on growing. Adjustment for seasonality indicated the preservation of April growth rates (minimal from February 2010) in May.

In June the dynamics of demand underwent the greatest positive changes. Sales growth rates (after seasonal adjustment) increased by 9 points within a month and altered sign: reduction of demand in May (-5 points) was followed by increase of sales in June (+4 points).

Higher growth rates of sales at the stage of recovery from the crisis were registered only twice. Production quite adequately responded to larger sales: output growth rates according to both the initial and seasonally adjusted data demonstrated rise up to the best crisis levels. The adjusted balance (output growth rate) was up 4 points. In June production projections of enterprises continued to improve and reached a 3-year maximum (according to data adjusted for seasonality), i.e. the Russian industry had never been so optimistic about the growth of output since July 2008.

But in July 2011 sales failed to sustain the June achievements and demonstrated an apparent slowing down as judged from initial data and zero growth as judged from seasonally adjusted data. So, the demand for industrial products was still slack and its growth unstable.

However, demand projections remained optimistic. In the three previous months they improved by 9 points and as a result reached a 3-year maximum, i.e. the expectations of sales Section The Real Sector of the Economy expansion in industry were the most positive since July 2008. Negative dynamics of demand resulted in the slowing down of production growth in July. After seasonal adjustment the balance of this indicator returned to the average level of January-May 2011. The halting of sales expansion and worse assessments of finished goods stocks had a negative impact on production projections. After 3 months of their improvement enterprises decided to reduce output growth rates in the following months.

In August the actual dynamics of demand for industrial products continued to deteriorate.

The growth rates of sales fell down to zero as judged from initial data and became negative as judged from seasonally adjusted data after the June upsurge, the demand for industrial products resumed weakening. Negative trends in sales were registered in all branches except machine-building. But then demand projections evidenced that enterprises still went on hoping for revitalization of sales in autumn. Both initial and seasonally adjusted expectations improved in August. The latter even attained a 3-year (i.e. crisis) maximum. Despite a clear worsening of demand dynamics, the intensity of output growth in August increased according to all data. As a result the changes in production outpaced changes in demand at 28% of enterprises while in the previous two months this indicator equaled only 22% and in 2010 averaged 24%. Production projections of enterprises improved as well: slightly as judged from initial data, and up to a crisis maximum as judged from seasonally adjusted data.

According to estimates of enterprises, in September the demand for produce in industry at large apparently stopped growing. Surveys indicated its stagnation for the second month in turn as judged from initial data and for the third month in turn as judged from seasonally adjusted data. However, if one excludes a slight increase of sales in June, the stagnation went on since the start of the year.

Until August industrial enterprises still cherished hopes for the revival of demand. In September these illusions were superseded by a drastic revision of projections: within a month the balance of expectations dropped from +13 to -10 points as judged from the initial data.

Adjustment for seasonality indicated its lowering from +13 to +4 points. Negative trends in the expected dynamics of sales (either a slowing down of growth or an absolute reduction) were recorded in all branches except for food industry.

% PROJECTED ACTUAL --11/-1/05 1/06 1/07 1/08 1/09 1/10 1/11 1/Fig. 18. Change of output adjusted for seasonality (balance = % growth - % decrease) RUSSIAN ECONOMY IN trends and outlooks According to initial data, in September the intensity of production growth decreased by 10 points as compared with August, and when adjusted for seasonality hit the bottom for the previous 18 months (see Fig. 18). Russian industry was struggling to sustain output growth in the conditions of clearly stagnating demand, growing surplus of stocks and nervousness on the world markets. In August dynamics of production outpaced dynamics of demand at 30% of enterprises, in September at 26%, and projections for October-November suggested that this trend would persist at 26% of enterprises. The latter indicator was a 45-month maximum.

In other words, production projections had never diverged so much from the demand projections since January 2008. And all this even despite the fact that the balance of output projections in September fell to +7 points down from +25 points in August as judged from initial data and down to a 13-month minimum as judged from seasonally adjusted data.

In October the absolute reduction of demand continued. The initial balance fell to -7 points and when adjusted for seasonality down to -4 points. Since the start of 2010 a more intensive drop of sales was registered only once in April 2011. Initial demand projections remained negative for the second month in turn, i.e. downward expectations in industry prevailed over upward expectations. Adjustment for seasonality changed the sign of October projections balance for +; however, the value of this indicator was the lowest since May 2011.

In November 2011 surveys revealed more intensive lowering of demand for industrial products. The initial balance (growth rate) of sales fell by 6 more points (down to -16 points) and as a result became comparable to indications that used to be registered in January in precrisis years and in the current year. Adjustment for seasonality corrected the balance to -points which was the worst indicator since September 2009. Demand projections after the September nose-dive by 22 points lost 15 more points in November. As a result the November balance of projections (before adjustment for seasonality) was as low as -20 points. Over the 20-year history of surveys the values of this indicator were worse only 3 times: in 1998, and 2009. So, at the end of the year industry had very faint hopes for the revival of demand.

However, formal methods of adjustment for seasonality leveled off the pessimism of enterprises and reversed the sign of demand projections balance from - to +. Still, its value remained minimal for the current year and was clearly behind projections of late 2010.

In November production growth rates didnt change as judged from either initial or seasonally adjusted data. The initial balance in November (as well as in the previous months) was around zero and remained the worst (certainly, excluding the nation-wide January timeout) since the start of 2010. Adjustment for seasonality increased its absolute value but left it at the minimal level since March 2010. Enterprises didnt trace any revival in industry.

They didnt expect it in the coming months either. In November production projections of enterprises (before adjustment for seasonality) fell by 16 more points and became negative (there appeared more enterprises planning to cut output) thus continuing the downward trend that formed at the beginning of the second half of 2011. As a result within the 5 preceding months these projections lost 45 points while within the same period of the previous year the loss was 25 points. Adjustment for seasonality smoothed out the situation and stabilized output projections for September-November at one level, albeit the lowest in 2011 and 9 balance points below the level of September-November 2010.

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