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Table Dynamics of international stock indexes 24 2003 (%) (%) () Dow Jones Industrial Average () 9112.98 1.42% 5.87% Nasdaq Composite () 1701.29 4.84% 22.85% S&P 500 () 981.6 0.73% 7.98% FTSE 100 () 4149.6 2.94% 3.49% DAX-30 () 3374.82 4.79% 8.69% CAC-40 () 3156.86 2.36% -1.19% Swiss Market () 4970.6 3.26% 1.45% Nikkei-225 () 9671.0 6.47% 10.99% Bovespa () 13761.0 6.07% 18.6% IPC () 7309.41 3.61% 17.41% IPSA () 1278.98 4.14% 24.15% Straits Times () 1549.25 7.00% 15.96% Seoul Composite ( ) 702.94 4.93% 10.67% ISE National-100 () 10475.16 -3.76% -1.16% Morgan Stanley Emerging Markets Free Index 347.598 4.48% 18.96% The forex market With the strengthening USD on international markets in early July and a slightly decline in domestic exporters offer, it appreciated slightly vs. RUR and between June 28 through July 25 showed a 0.(0.02%) kopeck growth - from 30.348 up to 30.356 RUR/USD. The overall amount of trades on USD in SELT system made up USD 7.01 bln., with the maximal level of daily transactions registered on July 15 - USD 766 mln.

37.36. 35. Dynamics of the official exchange rate of RUR to USD and EURO On international forex markets USD plunged vs. EURO by 0.1 cent (-0.09%) and hit the level of USD 1.143/EURO. So, after a slight drop in the middle of the month to USD 1.118/EURO (on July 16), the rate practically got back to the level registered in late June 2003.

EURO appreciated by 14 kopeck (0.41%) vs. RUR over the period in question- from the level of 34.71 to 34.85 RUR/EURO. The overall amount if trades on EURO in SELT between June 30 through July accounted for EURO 160.256 mln. The maximal volume of transactions was registered on July 17 and made up EURO 14.931 mln., while the lowest level was noted on July 22 - 5.77 mln. dynamics of EURO/USD rate on international financial markets Indicators of financial markets Month March April May June July * 1,1% 1,0% 0,8% 0,8% 0,9% Monthly inflation 14,02% 12,68% 10,03% 10,03% 11,35% Inflation rate for the year estimated on the basis of inflation rate in the month 18% 18% 18% 16% 16% Rate of refinancing of the Central Bank of Russia 8,85% 8,03% 6,44% 5,31% Average yield to maturity on all issues of OFZ securities (% per annum) 33,45 20,83 20,68 40,12 Volume of the GKO-OFZ securities market per month (billion rubles.) Yield to maturity of OFZ securities as of the end of the month (% per annum):

6,23% 5,57% 4,78% 4,90% 5,9% 5 tranche 5,19% 4,18% 3,87% 3,79% 4,5% 6 tranche 6,45% 6,19% 5,40% 5,61% 6,3% 7 tranche 5,25% 4,78% 4,17% 4,20% 5,2% 8 tranche Yield to maturity of eurobonds as of the end of the month (% per annum):

3,68% 3,22% 2,74% 2,74% 3,2% 5,09% 4,68% 3,93% 3,97% 4,6% 6,27% 5,85% 5,27% 5,37% 6,0% 7,33% 7,20% 6,43% 6,35% 7,3% 8,08% 7,78% 6,88% 6,91% 7,8% 8,41% 7,94% 6,99% 7,13% 7,8% 3,71% 3,46% 1,81% 3,17% 5% Inter-Bank Lending-MIACR rate (% per annum as 31,3805 31,1000 30,7090 30,3483 30,of the end of the month) on overnight loans Official USD exchange rate as of the end of the 33,5865 34,1447 36,4669 34,7124 34,month (RUR/USD) Official EURO exchange rate as of the end of the -0,62% -0,89% -1,26% -1,17% -0,49% month (RUR/EURO) Gain of the official USD exchange rate in the -1,38% 1,66% 6,80% -4,81% -0,9% month (%) Gain of the official EURO exchange rate in the 304,35 601,40 497,74 442,12 month (%) Stock market volume in RTS in the month (mil 363,68 429,16 467,1 500,1 USD):

Value of the RTS-1 Index as of the end of the -5,10% 18,00% 8,84% 6,41% -7% month Change in the RTS-1 Index in the month (%) 1,1% 1,0% 0,8% 0,8% 0,9% *Estimation D. Polevoi The real sector: factors and trends According to preliminary results of the 1st half 2003, Russias GDP grew by 7.2% relative to its respective index of the prior year. The increment in domestic demand over the 1st half 2003 made up 8.5% as compared with the 1st half of 00 and fully determined the dynamics of economy growth. This year the structure of final demand was changing under the impact of an advanced rise in gross accumulation vs.

households final consumption.

Preliminary results of the 1st half 2003 show a 7.2% increment in Russias GDP vs. the 1st half of the prior year. The year of 2003 sees an acceleration of growth rate across practically all the sectors and industry branches. The volume of industrial output rose by 6.8% and that of construction- by 14.3% s. their respective indices of the 1st half 2002. In the sector for services it was trade and communication sectors whose development was most intense. The positive dynamics of development of basic sectors of the economy and a favorable state of affairs in the area of foreign trade have determined the nature of structural shifts in GDP.

An intense rise in the value volume of export of goods fueled both by an increase in its physical volume and the price factor has resulted in the renewal of positive dynamics of net export. According to estimates of the RF Ministry of Economic development and trade, in the 1st half 2003 export of goods made up USD 61.bln. and grew by 28.3% vs. the respective period of the prior year, while importation of goods grew at 20.7%. In the first half 2003, the foreign trade balance averaged USD 5 bln. a month, which is comparable to the record values reported in 2000.

This year, the national economy retains the trend to an advanced growth in domestic demand vs. external demand, which has been in place since the 4th quarter 2000. Very favorable international prices for energy sources and non-ferrous metals and the ongoing intense external demand and a rise in exporters revenues generate transformational processes of expansion of the domestic market for consumer and investment goods.

It was export-oriented industries that contributed at most to the increment in industrial output over the period in question. With the 9.% rise in the fuel and energy complexs output (including a 10.0% growth in output in the fuel industry), the growth rates in the sectors producing intermediary goods accounted for 106.3% and final goods- 105.9%.

The growth in investment activity has resulted in an intensification of output in the machine-engineering sector (at 7.6%) and the sector for building materials (at 5.6%) vs. their respective indices of the prior year.

The overall progress was darkened by a deceleration of growth rates in output in the food sector to 104.3% vs. 108.2% reported in the first half 2002 and a 0.8% decline in the light industrys output caused by the ongoing crisis in the sector for textiles. Moderate dynamics of production of domestic goods designated for final demand was compensated by an intense expansion of imports, which has also undergone serious changes this year which became dominated by the importation of machinery and equipment, rather than consumer goods, as it had been noted last year.

The new wave of investment rise in the industrial sector is ensured by fuel and food-processing enterprises, while the complex of industries servicing to investment demand retains the trend to contraction of spending on capital assets reproduction. That boosts the share of imports on the investment market. In the 1st quarter 2003, domestic enterprises invested as much as RUR 22.5 bln., or 26.7% of the overall investment in machinery and equipment vs. 22.7% reported on the respective period of the prior year.

The increment in domestic demand in the 1st half 003 vs. its respective index of the prior year accounted for 8.5% and fully determined the dynamics of economic growth. It should be noted that given that in the 1st half 2002 the countrys economic development was determined by the expanding final consumption on the part of households, this year, the structure of final demand experiences changes caused by an intense rise in investment in capital assets. Some preliminary estimates show that while the household consumption grew by some 6.8% vs. the 1st half 2002, the growth rates in investment in capital assets soared by 11.9%.

---Gross domestic product Households final consumption Investment in capital assets Fig.Change in dynamics of GDP across components of final demand in 1999-2003, as % to the respective period of the prior year.

The expansion of final consumption is fueled by a gradual improvement of social parameters of economic development. The development of this particular trend appears a logical consequence of a strategy aimed at the renewal of the populations pre-crisis level of living standards. In the 1st half 2003 relative to the respective period of the prior year the populations real incomes grew by 14.6%, while real salaries and wages showed a 9.7% and a real amount of monthly pensions due - a 2.4% rise. The populations rising effective demand causes an intense growth in the retail trade turnover. In contrast to the prior year when practically all the increase in goods turnover was ensured by the expansion of food stuffs sales, the 1st half 2003 shows a reverse correlation: with the 8.9% rise in the retail trade turnover vs. the 1st half 2002, the increment in food stuffs sales accounted for 7.3%, while non-food goods- for 10.3%. The change in consumer behavior is explained by the slowdown in inflation rates ad structural shifts in prices across main groups of tradables. Overall, in the 1st half 2003 consumer prices rose by 7.9% vs. 9.0% reported in the 1st half 2002, with prices for food stuffs showing a 7.4%, while those for non-food goods- a 4.6% rise since the start of the year. Interestingly, under the current income level statistical observations register changes in the assortment structure of sales of food stuffs in favor of more expensive ones.

The share of consumer spending in the structure of use of monetary incomes dropped and accounted for 70.5% in the 1st half 2003 vs. 74.2% in the respective period of 2002. With the populations income growing, domestic consumers gradually lower their share of spending on goods and are becoming increasingly keen to save more. It is not accidental then that saving institutions are regaining their attractiveness in the populations eyes: the share of savings in the form of deposits and securities in the structure of the populations pending grew by 1.6 percent point over the period in question vs. the 1st half 2002.

The noted structural shifts in the populations use of their monetary means are accompanied by changes in the populations distribution in terms of per capita income. Despite the remaining high income differentiation rate, there emerges a trend to contraction in the share of the needy, who in the 2nd quarter 2003 accounted for some 33 mln. (2-23% of the overall Russian population) vs. 37.2 mln. reported in the 1st quarter and 39.1 mln. in the first half 2002. This process was also affected by the ongoing increase in populations real incomes that has been in place since 2000.

2 3 4 2 3 4 2 3 4 2 3 4 2 1/1\1\1\1\While nearly 70% of the populations aggregate incomes fall on employees salaries and wages, it necessitates an increase in the employment level. According to some selective employment surveys, in the 1st half 2003 the share of those employed in the economy grew from 64.7 to 65.2 mln., while the overall number of unemployed computed according to ITO has fallen by 375,000 since January 2003 and now accounts for 6.1 mln. (8.5% of the economically active population). The tension rate (computed as the number of unemployed registered with public employment agencies per 1 vacancy) dropped from 2.2 in January 2003 to 1.7 in June 2003. The change in the labor market has thus become a result of the acceleration of economic growth rates.

O. Izryadnova The IET business survey: July The first results of the July survey prove the strengthening of positive trends in dynamics of main indicators of the national industrial sector. rather an intense rise in sales allows enterprises to maintain high growth rates of output without overloading their storage facilities with finished products, increase their production capacitys loading rate and employ new personnel.

As estimated by the Center of macroeconomics analysis and short-term forecast, he growth of the national economy in the 2nd quarter was taking place under the sharp deceleration of industrial growth to 0.5% in the 2nd quarter vs. 1.1% reported in the 1st quarter. One of the reasons underlying the process is lowering dynamics of output in export-oriented industries. In the fuel and energy complex, the average monthly growth rates fell to 0.1% vs. 0.8% in the 1st quarter, while mineral industries reported a 0.5% fall- from 1.1% down to 0.6%. An accelerated expansion of domestic final demand coupled with a simultaneous slowdown in growth of imports encouraged output in the sectors focused on the domestic market, which formed the very cornerstone that allowed to maintain the overall economic dynamics and avoid sliding into stagnation. The industrial sector is loosing its role in ensuring the growth in GDP, while positive dynamics of the latter was secured by the construction sector (investment boom), trade (rising consumer spending) and output o other market services.

The first data on the 3rd quarter that IET received in July showed the strengthening of positive trends in dynamics of main indicators of the national industrial sector.

First, monetary sales of industrial produce have sustained their fairly high growth rates for the second month running, except the light industry and (due to seasonality) the electricity sector. The most intense rise in sales was noted in metallurgy, chemicals, petrochemicals and the industry of building materials. The balance of estimates of demand volumes (above-below normal) improved by 12 points at once in July and broke a record value ever noted since July 1993 (see Fig.). The share of enterprises that consider the volume of effective demand for their output to be normal grew up to 84%, which is an absolute peak value ever registered by our surveys since March 1992.

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