Russian Industry in January S. Tsukhlo The analysis of the situation in the Russian industry based on a wide range of indices of monthly IET economic surveys demonstrates the formation of the new trends in the economic dynamics. Deceleration of demand decrease rates has lead to stabilization of level of satisfaction with sales volumes and enabled the enterprises correcting the output dynamics. The change in the price and production policy has prevented the further increase in overstocking of warehouses. There is an excess of production facilities and staff appearing in the industry, which creates the basis for after-crisis noninvestment breakthrough.
Official December Statistics is Controversial As compared with December 2007 in December 2008 the industry has decreased by 10.3% (in November 2008 as compared with November 2007). However in December 2008 the production output was 3.8% bigger than in November 2008. It was the Federal State Statistics Service that published the data. Experts express different estimations of these official numbers. According to the opinion of the Center for Macroeconomic Analysis and Short-Term Forecasting the scale of annual drop in November and December were comparable, being 12.8% and 13%, correspondingly. The recession has not aggravated, the industry has reached the bottom. According to other estimations the rates of production decrease reduced to -3.4% in December on the previous month. In November the corresponding period was equal to -7.1%, which means that the rates of production decrease have slowed down by half. There is the third opinion, according to which the bottom has not been reached yet. Obviously, the traditional official statistics set of data on the output production is not sufficient for the reasonable estimation of the situation in the environment of the crisis.
Is Crisis Spreading The first data on the situation in the Russian industry in January (which has not been the best month of the year recently) demonstrate the evolution of the new trends in the economic dynamics.
First, the rates of demand decrease have begun to slow down. Whereas in November this index (on exclusion of the seasonality) made -50 balance points, in January this value was equal to -32 b.p. The change was obviously for the better. The slow-down of the rates of sales decrease was registered in the majority of the branches of industry.
However the slow-down of the sales decrease has but a little effect on the estimations of their volumes so far. In January 2009 25% of enterprises found them satisfactory, which is by 3 points better than the figure of December but worse than the estimations of November 1999 – November 2008. The decrease of the value of this figure (drop of 38 points over the half of the year, including the drop of 18 points in November) has at least stopped. The highest satisfaction with the demand was registered in foodstuffs production (60%, 45% in December), non-ferrous metallurgy (56%, 42% in December) and machine-building industry (28%, in December 26%). The minimum was observed in the chemistry and petrochemistry (2%, in December 6%), and construction industry (2%, in December 4%).
Second, the change in the demand dynamics enabled the industry to correct the output dynamics as well. In January the rates of output decrease (on exclusion of seasonality) has changed from -30 to -balance points. This change is for the better as well, obviously. The slow-down of output decrease rates has been registered in nearly all the branches of industry as well, according top the survey.
Moreover in ferrous metallurgy the growth of production seems to have started (balance of output change on exclusion of seasonality became positive). Only in the power industry, fuel and foodstuffs industries the situation continued to aggravate.
The only negative signal of the beginning of the year was the strengthening of the leading position of the insufficient demand in the obstacles rating, and this only if compared with October 2008 when the previous metering was made and when the beginning of the full-scale crisis in the domestic industry had not been obvious yet. Now only 67% of the enterprises regard low demand as the obstacle, and this is 21 point higher than in the fourth quarter 2008 and by 41 points more than the absolute minimum level, registered in the 3rd quarter 2007. This obstacle was registered to be spreading at a comparable scale in 1996, 1998 and 2002, and larger scales were observed only in 1994. The citing of the insufficient export demand has reached the absolute maximum figures, which is accounted for by the global nature of the crisis. The weakness of the external markets was the limitation for 36% of the Russian industrial enterprises. Post-default minimum (11%, 4th quarter 2007) was exceeded by more than three times. And it is non-payments that aggravate the situation in the industry, holding the third place in the rating of obstacles. In the 1st quarter 2009 non-payments became the limitation for 39% of the enterprises as compared with 10% at the end of 2007 and beginning of 2008.
Industry concentrates However the obstacles monitoring has revealed positive trends as well. The deficit of liquid funds holds the second place. However the growth of the limitating influence of this obstacle in the Russian industry has stopped after it has reached the frequency of 50% citation at the end of 2008, which id the maximum for the previous 22 quarters. At present the shortage of the liquid funds is the obstacle for 46% of the enterprises. The shortage of credits restricts only 18% of the enterprises. Competing import has lowered its negative impact on the Russian industry down to 11%, which is one third of the absolute maximum (of 31%), registered just in the 3rd quarter 2008. Such are the first proved results of the currency exchange rate policy of the Central Bank of the Russian Federation.
Only 16% of the enterprises suffer from the shortage of staff, whereas half a year ago 49% of the enterprises considered it as an obstacle, that is the tree-fold drop has been observed. The lack of equipment is regarded as an obstacle for the output growth at 10% of the enterprises, whereas half a year ago at was cited by 24% of the enterprises, and one and a half year ago – by 32% of the enterprises (absolute maximum).
Excessive stocks of the finished goods in the industry stopped increasing. The second month in the row the balance of estimations remains at the level of +26 points. This is certainly above the average value of the first 10 months of 2008 by more than three times, but does not seem to be excessively high for the post-default period. This index sometimes reached similar or close values in 2002 and 2005. At those times there were only occasional ascents though. It seems that the enterprises having resolutely corrected their price and production policy have succeeded in finding the balance between the demand and the supply and managed to stop further overstocking of the warehouses. There are no more excesses registered in the non-ferrous metallurgy (balance is equal to -6 points), in chemistry, petrochemistry and foodstuffs industry excesses are little (+3 and +5 points). The maximum excess of stocks is characteristic for wood-processing (+66 and +31 balance points in December) and construction industry (+54 after +35). Machine-building enterprises estimate their stocks at the balance of + points, which is worse than the December value (+18).
The stabilization of the situation with the industry crediting should be regarded as a positive factor.
Credits availability which dropped in November by 40 points, in December reduced only by 6 points and in January went up by 5 points. There is now 22% of the enterprises that has normal access to the credits. This index varies by branches: from 28% in the foodstuffs and petrochemistry to 10% in the construction industry and light industry.
In January price policy of the enterprises was not subjected to significant changes. The results on exclusion of seasonality demonstrated the increase in the intensity of price reduction down to -points in January 2009 after -15 in December. Such an intensive reduction in the producers’ prices has never been observed (even in July 1998 the balance of this index was -12 points). However there are the indicators of the change in the trend appearing in the price policy of the Russian industry. Some branches have reduced the rates of prices reduction in January, and in the forthcoming months are ready to pursuit this policy and even transfer to prices increase.
Dynamics and prospects of employment In January 2009 515 of the industrial enterprises reported the reduction of the staff. There has not been registered such a high level of dismissal since the time when monitoring of this index (real changes in the number of employees) started in 2003. in the 4th quarter 2008 “only” 35% of the enterprises reported the reduction in staff number, in the 3rd quarter – 18%, in the 2nd – 8%. Especially big employments lay-offs were observed in the construction materials industry (73% of the enterprises), ferrous metallurgy (67%), chemistry and petrochemistry (54%).
However not all the excessive employees suffered dismissals. The enterprises learning from the experience of the staff shortage in the recent years, still prefer holding the most precious employees, regarding them as excessive but understanding that it will be more difficult and more expensive to find them and to bring them back when the economic growth recovers than to hold them.
Staff plans of the enterprises in January 2009 have not worsened when compared with October 2008. Though the balance remains negative, that is the dismissals will go on, the government should not expect the expansion in their scale in February-March. The biggest employment lay-offs are expected in ferrous metallurgy (58% of the enterprises), wood processing industry (43%) and machinebuilding (34%).
Basis of future growth Not only has the crisis lowered the limitating influence of the staff and equipment shortage, but it also has resulted in formation of their excess in the Russian industry. The balance of the excessive employment has reached +25 points in the 1st quarter 2009, whereas in the 4th quarter 2008 the industry suffered from the shortage of staff (balance being -13 points). Thus the share of the enterprises with the excessive staff (33%) is considerably above the share of the enterprises with shortage of workers (8%). There has not been such a large excess for more than 10 years, regarding the excessive workforce the industry has returned to the level of 1999. Now the biggest excess is registered in ferrous metallurgy (50 balance points), construction industry (47 balance points) and foodstuffs industry (42 balance points).
The excess of capacities was equal to +38 balance points at the beginning of 2009 and was also comparable with the beginning of 1999. However the idle production capacities appeared in the Russian industry in the 3rd quarter 2008 (+3 balance points), when the production recession in Russian was considered to be unlikely. Now there are idle capacities in all branches of industry with the exception of non-ferrous metallurgy. The excess of capacities is especially high in the construction industry (+77 balance points), ferrous metallurgy (+73 b.p.) and foodstuffs industry (+55 b.p.). Thus, the Russian industry has already got the possibility for the after-crisis non-investment spurt.
Foreign Trade N. Volovik In November 2008 there occurred a sharp drop of the main indices of the Russian foreign trade.
The drop in oil prices in the fourth quarter accounted for the accelerated rates of export reduction.
Ruble depreciation and the decrease in the population incomes have resulted in the considerable contraction of the import supplies.
The Law “On making changes in article 3 of the Law “On customs tariff” changing the procedure for the calculation of the oil export duty has come into effect. The Government of the Russian Federation prolonged the effect of the duties for sugar import from the Ukraine up to 1 January 2013.
At the end of 2008 the formation of the foreign trade dynamics was accounted for by the slow-down of the world economy growth rates, which resulted in the decrease of the world demand for the fuels and the raw materials. As a result there occurred a gradual decrease in prices for fuel resources at the world market, average price of the oil grade Brent being USD 57.15 per barrel in November. Under the influence of these factors there was a sharp decrease in volumes of foreign trade in November 2008. For the first time since June 2002 the monthly index of the foreign trade turnover has reduced both as compared with the corresponding figure of the previous year and as compared with the previous month. Russia’s foreign trade turnover calculated on the basis of the balance-of-payment methodology made USD 51.8 bln in November 2008. As compared with October 2008 it has reduced by 21.3% and as compared with November 2007 – by 11.6%.
2000 2001 2002 2003 2004 2005 2006 2007 Balance Export Import Source: Central Bank of the Russian Federation Fig. 1. Main Indices of Russia’s Foreign Trade (as USD billion) In November 2008 the volume of Russian export was equal to USD 30.1 bln, which is by 22.6% below the figure of the previous month and by 16.7% below the figure of November 2007. It should be noted that the export to CIS countries has considerably reduced, the goods worth USD 4.2 bln were exported there, which is by 20.3% below November 2007. Goods worth USD 25.9 bln were exported to non-CIS countries (by 16.1% below the figure of the previous year).
According to the data of the customs statistics, as compared with November 2007 in November 2008 the oil export in real terms has reduced by 11.1%, export of oil products – by 2%, of natural gas – by 29.9%, of aluminum – by 34.4%, of ferrous metals – by 43.8%, of fertilizers – by 30.4%, of nonprocessed timber – 30.7%. It is mainly due to the worsening of the situation at the world market.
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