In the beginning of this year, there is observed an improvement of the structure of industrial growth.
While fuel and raw material industries maintain their leading positions, they began to produce a stimulating effect on production in the sector of manufacturing industries. Therefore, the export oriented sector of industry to a certain extent transforms growth in external demand in expansion of domestic demand. For instance, in January through April of 2003 the increase in output of mechanical engineering made 5.7 %, while the growth in the industry of construction materials and food industry made 3.5 % and 4.2 % respectively. It shall be noted that a specific feature of mechanical engineering is the acceleration of rates of output of machinery and equipment not only for processing industries, but also for the industries of the consumer complex and the sphere of services. The intensive development of products of mechanical engineering for light and food industries, growth in production of household appliances, supplies to the industries relating to communications and instrument making are supported by accelerating processes of modernization of fixed assets across the respective industries, creates new niches for domestic producers on the internal market, and transforms the competitive environment. It may be assumed that the enhancing business activity across manufacturing industries and the investment complex occurring in early 2003 was the natural reaction of domestic businesses to the shrinking of the internal market of domestic products.
The presently formed situation is characterized, on the one hand, by the exhaustion of the potential of relatively inexpensive increase in output via utilization of idle production capacities, and, on the other hand, by the diminishing effectiveness of investment in traditional spheres. Yields of state securities and interests on deposits are at present practically negative, while export of capital and investment on world stock markets are not attractive options. Taking into account the high capacity of the Russia’s market, there are forming prerequisites for investment in the real manufacturing. The stability of rates of economic growth in the short and medium term perspective and diversification of the economy will to a considerable extent depend on the effectiveness of the effort to improve the investment and business climate in the country.
O. Izryadnova IET Business Survey: Industry The slowdown of industrial growth registered in April continues. In May, the growth in effective demand almost stopped. However, the adjustment of output allowed enterprises to avoid hoarding of finished stocks.
After the pre-May decline in optimistic forecasts, enterprises again begin to hope for a growth in their sales, output, and profits. The plans of purchase of machinery and equipment for the 3rd quarter retained the level of optimism registered in the preceding quarter.
The slowdown of industrial growth registered in the April IET survey was confirmed three weeks later by the official data. The RF Goskomstat informed that the dynamics of the whole volume of production (taking into account the excluded influence of the labor time fund) in April made 95.2 % in comparison with the figures observed in March of 2003. The Center for macroeconomic analysis and short term forecasting (CMASTF) after the adjustment for the seasonal factor evaluates the April results as 100.2 %. Since the beginning of the year, the amount of production has increased by 4.4 % (April figures as compared with December data, adjusted for the seasonal factors). The lesser intensity of industrial recovery was caused by the return to the model of development basing on the export oriented and raw materials industries. According to the CMASTF experts, in April more than 2/3 of the increase in output occurred at the expense of growing production of power engineering, fuel industry, and non-ferrous metallurgy.
However, the results of the May survey again do not provide grounds for optimism. The rates of increase in cash sales fell almost to zero in May. Enterprises across all industries with the exception of metallurgy and food industry report a slowdown in growth. An absolute decline sales continues in forestry, wood working, pulp and paper, and light industries. At the same time, it shall be noted that in May there are many nonworking days and this fact may somewhat improve the month’s results as viewed by the traditional quantitative statistics. The slowdown of increase in effective demand did not affect the dynamics of barter and other non-cash types of demand. They continue to decline and gradually loose their importance. The shares of responses “normal” increase in April and May by 4 points and at present makes 41 %. It is the best value registered over the last seven months.
In May, the rates of decline in real profits decelerated by several balance points. However, in the Russia’s industry at large profits continue to fall. Some growth was registered only in metallurgy and industry of construction materials.
Production has also stopped to grow. The May balance was at zero by 21 points below the level observed in April. Growth in output was retained only in metallurgy, mechanical engineering, construction industry and food industry. In other industries, there prevail enterprises decreasing their output.
Enterprises still consider insufficient effective demand and shortage of working capital as the major limits to growth in output. Non-payments, formerly the most widespread problem, have lost in “popularity” more than two times. Only 25 % of enterprises listed them among the obstacles to growth, while almost the same number of enterprises consider competitive imports a limit to their production. The frequency of reports mentioning the latter indicator has increased from 3 % in 1999 to 20 %. At the same time, the shortage of raw materials and semi-finished products, to the contrary, decreased to its historical minimum. Only 14 % of enterprises consider this factor as an obstacle to increase in output, while in the winter of 1998 – 1999 it was mentioned by 35 % of enterprises.
Restrained growth in output allowed enterprises to increase the share of normal evaluations of their finished stocks. In May, this indicator reached 55 %. The surveys have not registered so many enterprises satisfied with their finished stocks since March of 1992. The share of such reports is especially high in metallurgy (70 %), construction industry (68 %), and mechanical engineering (60 %). The balance of evaluations (above the norm – below the norm) also indicates that the situation relating to finished stocks improves. In May, the balance decreased by almost 8 points, however, it remains positive (i.e. enterprises having excessive finished stocks prevail in the industry at large). A similar trend was registered across the majority of industries, while enterprises in metallurgy and food industry reported a shortage of finished stocks.
In the second quarter, surveys registered certain recovery of purchases of domestic machinery and equipment. The balance increased by 5 points and has become positive for the first time since in February of 2002 there was started separate (domestic and imported products) monitoring. A growth in purchases started across practically all industries with the exception of power engineering and light industry, where reports about a decrease in such purchases prevailed. An increase in purchases of imported machinery and equipment was registered only in metallurgy, forestry complex, and industry of construction materials.
After the pre-May decline in optimistic forecasts, enterprises again begin to hope for a growth in their sales, output, and profits.
On the whole, the balance of forecasts of effective demand increased by 9 points across industries. An improvement was registered in all industries with the exception of construction materials industry, which adjusted its overoptimistic expectations from + 75 % to + 48 %.
In the second quarter, the estimates of barter, promissory note, and offset operations maintained negative values. Enterprises intend to eliminate the remnants of such transactions. A certain growth in barter, promissory notes and offsets may be expected only in industry of construction materials, while in power engineering there is possible an increase in promissory notes and offsets.
Production plans of enterprises have also changed to the better both in the industry at large and at the level of individual industries. Only industry of construction materials diminished the planned output following the adjustment of forecasts of demand. However, even after the revision these plans remain most optimistic.
Hopes for growth in output also prevail across food industry, chemistry, and petrochemistry.
The plans of purchase of machinery and equipment for the 3rd quarter retained the level of optimism registered in the preceding quarter. On the whole, the industry at large and individual industries expect a moderate growth in purchases. The majority of enterprises intending to purchase domestic machinery and equipment were registered in non-ferrous metallurgy and construction industry, while plans to purchase imported equipment prevail in food industry, non-ferrous metallurgy, construction industry, chemistry, and petrochemistry.
S. Tsukhlo Regions: Dynamics of Industrial Output While the average national growth in industrial output in the 1st quarter of 2003 made 6.0 % (as compared with the figures registered in the 1st quarter of 2002), this indicator varied across individual regions from a growth by 39.8 % to a decline by 34.0 %. The differences among regions are mostly determined by the situation existing in each subject of the Russian Federation and not by the general trends of development of individual industries in the country – among the regions both demonstrating a decline in industrial output and the highest rates of growth are RF subjects with very different structures of industrial production (see Table 1).
Table Regions demonstrating the most and least favorable industrial output dynamics in the 1st quarter of 2003* IOI, 1st quarter IOI, 1st quarter Regions demonstrating most of 2003 in % Regions demonstrating a decline of 2003 in % of significant rates of growth in of 1st quarter of in industrial output 1st quarter of industrial output 2002 Kamchatka oblast 139,8 Republic of Komi 99,Leningrad oblast 125,6 Republic of Altai 99,Kursk oblast 120,8 Rostov oblast 99,Kaliningrad oblast 119,0 Stavropol krai 98,Chita oblast 119,0 Kirov oblast 98,Republic of Mordovia 118,6 Primorski krai 98,Karach-Cherkesian Republic 118,1 Novgorod oblast 96,Orenburg oblast 117,8 Murmansk oblast 96,Republic of Buryatia 115,8 Republic of Karelia 93,Tomsk oblast 115,8 Ulyanovsk oblast 93,Pskov oblast 113,9 Tula oblast 92,Moscow oblast 113,6 Samara oblast 90,Republic of Udmurtia 113,2 Republic of Sakha (Yakutia) 85,Yevreyskaya AO 112,6 Magadan oblast 68,Orel oblast 112,2 Republic of Ingushetia 66,Republic of North Osetia Alaniya 112,City of Moscow 112,* without autonomous okrugs IOI – industrial output index In spite of the fact that in the 1st quarter of 2003 the situation of export oriented industries was more favorable in comparison with the industries oriented towards the domestic market, among regions demonstrating highest rates of growth in industry there are few those specializing in fuel industry, ferrous and non-ferrous metallurgy, for instance, the Orenburg oblast (although the production of natural gas in the oblast has even somewhat declined), the Tomsk oblast (where volumes of extraction of oil and natural gas have increased by more than 40 %), not included in the table the Nenetsian AO, where at the expense of narrow specialization (oil extraction) the volume of industrial output has increased by 35 %. At the same time, some raw materials regions are among outsiders, for instance, the Republic of Komi (where extraction of coal and natural gas fell at the background of growing extraction of oil).
There is yet another example of absolutely different situations existing in the framework of the same industry across regions: fish industry. While in the country at large the volume of fish and sea products yields have on the average decreased by 9.2 %, in the Kamchatka oblast the respective yields increased by 50.3 % (this development has accounted for the fact that this region is leading in terms of growth in industrial output). At the same time, the Primorski krai, also specializing in fish industry was placed among regions characterized by a decline in industrial output (in this RF subject have decreased both the yields of fish and sea products – by 3.9 %, and the volume of fish processing).
Since the preceding year, there has persisted the trend towards relatively high rates of growth in industrial output in the regions of the Central Russian and North West, to a considerable extent due to their sales market capacities or location near to such markets. The list of leaders in terms of industrial output dynamics are the city of Moscow and Moscow oblast, Kursk, Orel, Leningrad, Pskov, and Kaliningrad oblasts (in the latter there has increased the production of a number of products of light and food industries, mechanical engineering, there also existed a favorable situation in motor industry). However, the rates of industrial growth in the city of St. Petersburg were rather modest, while in the Novgorod oblast the volumes of industrial output even declined. Among outsiders there was also registered the Tula oblast.
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