It should be noted that acceleration of inflation has not reflected on the situation at the consumer market as a whole yet. Consumer boom was sustained by acceleration of growth rates of population’s real incomes and continuous enhancement of consumer crediting. Increase in real population’s incomes in 2007 was equal to 10.4% against 13.3% last year and in average real wages – to 16.2% against 13.3% a year ago.
Increase in retail trade turnover in 2007 was equal to 15.2% against 13.9% a year ago and in the volume of paid services rendered to population has grown by 7.1%. The volume of credits granted to natural persons increased by 1.4 times in November as compared with the beginning of 2007. The factor that restricts the use of savings for current consumption is high investment activity of population in housing construction. In the population built the housing of the square of 1/3 more than in 2006 at the expense of own and loaned funds.
Foreign Trade N. Volovik In November 2007 high growth rates of the main indices of Russian foreign trade sustained. Considerable rise of oil prices in 3 and 4 quarters accounted for acceleration of export growth rates and slowdown of foreign trade balance reduction. It was high indices of economy growth and continuous ruble appreciation against dollar that promoted steady import growth rates.
At the end of 2007 formation of foreign trade dynamics was accounted for by several key factors: considerable increase in prices for fuel resources at world markets, instability of financial flows between countries, growth of prices for foodstuffs raw materials.
Under the influence of these factors, main indices of Russian foreign trade set new records in November 2007.
Russia’s foreign trade turnover, calculated on the basis of balance-of-payments methodology, was equal to USD 58.60 bln in November 2007. As compared with October 2007 it increased by 3.14%, and as compared with November 2006 – by 40.0%.
In November 2007 Russian export volume was equal to USD 36.0 bln, being 3.6% higher than in the previous month and by 4.1% higher than in November 2006. Goods worth USD 30.8 bln were exported in nonCIS countries (39.7% more than a year ago), to CIS countries – worth USD 5.2 bln (growth by 49.7%).
Prices for oil continued to grow, setting new historic records. Main reasons for oil prices increase at the world market were higher growth rates of demand for oil, especially from rapidly developing Asian countries, as compared with oil supply growth rates, slide of the US dollar against main world currencies, firm policy of OPEC countries as to the volume of oil production (at special session of the Organization of petroleum exporting countries, which took place in Vienna on 1 February 2008, it was decided to keep oil production quotas unchanged and equal to 29.67 mln of barrels per day) and other geopolitical and climatic factors.
In November 2007 average price for oil grade Brent was USD 92.41 per barrel. As compared with October of the same year its price had increased by 13.5%, as compared with November 2006 – by 60.2%. Average price at the world market for oil grade Urals was equal to USD 90.4 per barrel in November 2007, which is by 13.2% higher than in October 2007..
Rise of oil prices at the world markets resulted in immediate increase of export duties for oil. From 1 February 2008 export duty rate for oil increased from USD 275.4 per ton to USD 333.8 per ton. Export duty rates for light oil products is USD 237.2 per ton from 1 February as compared with USD 197.8 per ton that was in effect earlier, for dark oil products – USD 127.8 per ton against USD 106.6 earlier.
Price for Russian natural gas has grown by 7.4% as compared with the previous month. Export petrol prices have risen by 12.4% as compared with the previous month..
2000 2001 2002 2003 2004 2005 Balance Export Import Figure 1.Main Indices of Russian Foreign Trade (as USD billion) Source: Central Bank of the Russian Federation Situation at the world market of non-ferrous metals worsened considerably at the end of 2007. In November positive dynamics of prices was observed only at the market of tin and aluminum. Other metals have fallen in prices considerably over the month. For instance, over November nickel on average has fallen in price by 1.4%, copper – by 13%, zinc – by 14.6%, lead – by 15.1%. Prices for aluminum in November have risen slightly – by 2.7% as compared with October 2007, and as compared with November of last year aluminum has fallen in prices by 7.2%.
On the whole the negative dynamics at the markets of non-ferrous metals at the end of 2007 was accounted for by growth of stocks and increasing excess of supply. As a result of 11 months of last year excess was observed by nearly all kinds of non-ferrous metals with the exception for lead.
Average Monthly World Prices in November of the respective year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Oil (Brent), USD/bbl 17.8 11.5 24.1 25.6 19.35 24.4 28.6 43.1 55.0 57.68 92.Natural gas, USD /1 mln BTU 2.393 2.251 2.558 5.767 2.843 4.11 4.876 6.533 9.403 15.95 8.Petroleum, USD /gallon 0.5648 0.3739 0.6986 0.7649 0.5454 0.7203 0.845 1.289 1.801 1.52 2.Copper, USD/ton 1834.7 1601.6 1748.1 1914.4 1481.0 1610.0 2052.0 3123.0 4269.0 7002.0 6961.Aluminum, USD/ton 1535.5 1305.0 1470.7 1562.5 1326.6 1373.4 1507.0 1814.0 2051.0 2704.0 2506.Nickel, USD/ton 6099.0 4202.0 7984.2 7315.4 5159.7 7316.7 12090 14026 12116 31023 Source: calculated on the basis of London Metal Exchange, International Petroleum Exchange (London) Volume of import in the Russian Federation in November 2007 was equal to USD 22.6 bln, which is higher than the figure of last month by 2.5%, and exceeds by 38.4% the figures of November 2006. Goods worth USD 19.7 bln were exported from non-CIS countries (41.4% more than in November 2006), from CIS countries – worth USD 2.86 bln (growth by 20.6%).
High growth rates of Russian economy, population’s income growth, continuous ruble appreciation remain the main factors contributing in the import growth. Real ruble appreciation against dollar was 2.3% over November, against British pound sterling – about 1%, depreciation against euro – 0.7%. On the whole Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Jan Jan Jan Jan Jan Jan Jan Jan July July July July July July July July over January-November ruble appreciation against dollar in real terms was equal to 14.15%, against euro – to 4.2%, against pound sterling – 10.7%. Real effective ruble exchange rate appreciation over November was equal to 0.1%, and over January-November on the whole – to 4.6%.
As compared with October in November the rates of population’s real disposable monetary incomes increased and were equal to 3.1%. In January-November 2007 as compared with January-November increase in population’s real disposable incomes was 10.1%, of real wages – 16.0%, the figures being 13.2% and 13.4%, correspondingly, in January-November 2006. It was inflation acceleration that influenced the slowdown of real incomes.
Increase of import value was mainly due to increase in physical volumes of goods imported predominantly from non-CIS countries. The significance of price factor also increases. It is the prices for import of foodstuffs and agriculture raw material that has been growing by highest rates in recent months.
Positive foreign trade balance of the Russian Federation increased by 45.8% in November 2007 as compared with November 2006 – up to USD 13.4 bln. Positive balance with non-CIS countries was equal to USD 11.1 bln, with CIS-countries – to USD 2.3 bln.
In January-November 2007 Russia’s foreign trade turnover, according to the data of the Bank of Russia, was equal to USD 514.5 bln (122.8% against January-November 2006), of which export – USD 316.5 bln (115.4%), import – USD 198.1 bln (136.7%).
In January-November 2007 foreign trade balance remained positive, being USD 118.4 bln (in JanuaryNovember 2006 – USD 129.4 bln). Negative dynamics is accounted for by higher growth rates of import value volumes as compared with export ones. As a result index of foreign trade non-balance (ratio of foreign trade balance to foreign trade turnover) has decreased and was equal to 23% as compared with 30.9% in January-November 2006.
The Government of the Russian Federation by the Decree No 934 from 28 December 2007 established temporary duty rate for wheat, rye and wheat mixture and barley export at the level of 40%, but no less than EURO 0.105 per 1 kilogram. The decree will come into effect in one month after its official promulgation and will be in force up to 30 April 2008, inclusive.
According to the decree, obstructive duty for grain export now in effect has been increased by nearly times. It should be remembered that the decision on introduction of seasonal export duties for wheat and barley was adopted by the government of Russia on 10 October 2007. The duty for wheat is established at the level of 10% of the contract price but no less than Euro 22 per ton, for barley – at the level of 30%, but no less than EURO 70 per ton.
Such measures are caused by, first of all, the necessity to balance internal market of grain and stop prices growth that continued during summer and autumn.
Prices for foodstuffs and agriculture raw materials at the world market grew at record-breaking rates throughout 2007. World prices for wheat have doubled and exceeded at the end of December psychologically important level of USD 10 per bushel (USD 370.5 per 1 ton), which is historical maximum. Prices for other foodstuffs have also increased considerably. Soybeans increased by 67%, reaching their 34-year maximum, maize reached its 11-year-maximum and rice – 4-year.
In Russia the foodstuffs continued to grow even in the environment of the declared freezing of prices for the main foodstuffs. In November only the prices went up by 1.2%, which is two times more than in November 2006.
In December 2007 the government of the Russian Federation approved the list of goods the are of primary importance for the internal market, for which temporary limitations or export ban can be introduced. Milk and diaries, grains, flour and oil are included in the list.
However it was decided not to introduce ban for export, but to increase export duties for grains, since it is preferable for negotiation process on accession to the WTO. However exporters would prefer the total ban for export since in that case they would not have to pay fines in case signed contracts, the situation being regarded as force majeur. At present, if somebody has according to contracts unfulfilled liabilities, they will have to export the grain paying the duty. Internal price for wheat of 4th grade being RUR 6500, exporting company, paying EURO 105 of duty, will certainly suffer the loss.
The majority of exporters, however, have either already closed current contracts or are exporting the grain into transit territories (the Ukraine) in case they do not manage to dispatch it before the duties come into force.
After export supplies of grain stop in February, there might be a slight decrease in prices at the internal market. However prices at the Russia’s internal market are tied to the world’s and their further dynamics depends on the international situation.
On 28 January 2008 temporary limitations on import of the crop production from India were introduced in the Russian Federation. On 21 January in the large lot of sesame seeds, arrived at the seaport of Novorossiysk from India, living maggots of capra beetle were found. This is the second most dangerous pest after locust. The analysis of phytosanitary risk revealed that goods losses from this beetle in Russia can be from RUR 167 mln to 5.5 bln a year.
Temporary import ban for crop production from India into Russia will apply to peanuts, sesame seeds, rice and vegetables. The ban however will not apply to tea and coffee, but rules for these products import will be toughened considerably.
These goods will be imported into Russia from India only through checkpoints in Leningrad and Kaliningrad regions. They should be transported in packing produced without the use of natural plant fibers and accompanied with the information on preventive disinfection of packing material and containers, conducted by the corresponding organizations of the supplying country. All products should meet the phytosanitary requirements of the Russian Federation.
According to the data of the Federal Customs Service, in 2007 160 thousand tons of tea worth USD 1 bln was imported into Russia, of which 40 thousand of tons worth USD 100 mln - from India. Out of 50 thousand tons of green coffee beans (worth USD 135 mln), imported last year, 8 thousand tons worth USD mln were imported from India. 7 mln tons of instant coffee was imported of which 3.5 mln tons (worth USD 30 mln) – from India. Other important items of Indian export into Russia are rice and peanuts, whose supply annually is worth USD 50 mln. It should be noted that Indian sesame seed that was the cause for the ban, was supplies only in the volume of 2 thousand tons worth USD 3 mln in 2007.
The Government has introduced temporary rates of import duties with regard to some kinds of meat of cattle at the sum of 30% of customs value but no less than Euro 0.3 per 1 kilogram. The rates were approved for the period up to 31 December 2008.
Changes have also been made into the Decree of the Government No 732 “On import of beef, pork and poultry in 2006-2009”, according to which import customs duty rate for pork (fresh, cooled and frozen) is 60% of the customs value but no less than EURO 1 per 1 kilogram. Earlier the rate was equal to 50% but no less than EURO 0.83 per 1 kilogram. As regard to meat and foodstuffs by-products of poultry the rate has been changed to 60% of the customs value but no less than EURO 0.48 per 1 kilogram (earlier – 50%, but no less than EURO 0.4 per b1 kilogram).
Business Survey in January S. Tsukhlo The dynamics of the main indicators of the Russian industry demonstrate contradictory trends. Continuous slowdown of the demand growth does not allow enterprises to increase output growth rates, which makes the satisfaction with sales lower. However sharp rise in selling prices in January enabled industry to improve its financial situation considerably and …made the competition with import more acute.
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