At the background of stable expansion of external demand, export oriented industries have retained their leading positions in the Russian economy. In January through August, the production index in fuel industry made 107.9 per cent, including oil extracting branch – 109.5 per cent. Over the same period, output of ferrous and non-ferrous metallurgy increased by 5.3 per cent and 4.3 per cent respectively. As concerns chemistry, the increase in production there made 8.4 per cent.
Due to high profitability of export operations, in January through July of 2004 the net financial results demonstrated by the export oriented sector exceeded the aggregate indicators of industry by almost 42 p. p. In January through July of this year, the net profit of fuel industry increased 1.98 times, while ferrous and nonferrous metallurgy and chemistry demonstrated growth 2.3 times, 1.5 times, and 1.4 times respectively. The exceptionally good price situation on the world markets of energy resources and metals, as well as the growth in the earnings of exporters, has initiated transformational shifts on the domestic market. While rates of growth in output of manufacturing industries accelerated, this year the balanced financed results demonstrated by mechanical engineering, industry of construction materials, and food industry became positive. The increase in balanced profits in mechanical engineering, food industry, and the industry of construction materials made 7.4 per cent, 20.3 per cent, and 2.3 times respectively.
The dynamic expansion of investment demand had the dominating impact on the structure of the domestic market. In January through August of 2004, the increase in production of products of final demand made 9.1 per cent, while the output of industries belonging to the investment complex grew by 12.9 per cent. At the same time, the output of the consumer complex branches made 3.2 per cent.
The character of industrial dynamics were most significantly affected by mechanical engineering (an increase by 113.7 per cent in comparison with the figures registered in January through August of 2003) and the industry of construction materials (106.2 per cent). In spite of the outpacing rates of growth in output of mechanical engineering in comparison with the indicators of investment in fixed assets, the balance of the market of capital goods has been still supported by the outpacing rate of increase in import of machinery and equipment. According to the data presented by the Federal Customs Service, in January through July of 2004 the specific weight of machinery, equipment, and vehicles in the total amount of imports increased up to 44.1 per cent, as compared with 38.2 per cent registered in the respective period of the preceding year. by the end of the first six months of 2004, the share of imported machinery and equipment made 23.5 per cent of the total amount of the respective investment expenditures.
This year, the stable expansion of the final consumption of households was determined by the gradual improvement of the social parameters of economic development. In January through August of 2004, the increase in real household incomes made 9.2 per cent in comparison with the figures registered in the respective period of the preceding year, while real wages and salaries and real gross monthly pensions grew by 13.2 per cent and 6.7 per cent respectively. The increase in the effective household demand determined the intensive growth in the turnover of the retail trade. While the retail trade turnover grew by 11.4 per cent in comparison with the figures observed in January through August of the last year, the growth in sales of food and non-food products made 9.4 per cent and 13.2 per cent respectively. Similarly to the situation observed last year, the increase in the turnover was most significantly determined by the outpacing rates of growth in the market of non-food goods. To a certain degree, this development was determined by lower inflation rates and structural shifts in prices of major commodity groups. While consumer prices increased by 7.6 per cent in the first six months of 2004, the prices of food and nonfood products and services grew by 7.2 per cent, 4.6 per cent, and 13.6 per cent respectively.
Over the few last years, the development of the Russian economy has been dynamics has been characterized by moderate dynamics of output of domestic consumer products in comparison with the dynamic expansion of the retail trade turnover and household incomes. In January through August, the increase of production in food industry made 4.2 per cent as compared with the figures registered in the respective period of the preceding year. In January through August of 2004, the increase in output of food industry made 4.2 per cent, as compared with 4.6 per cent registered in the respective period of the preceding year. The competitive power of Russian food products was determined by the relatively low level of prices and the successful adaptation of production to the traditional structure of consumer preferences. In the first six months of 2004, the specific weight of food products and raw materials used for their production in the total amount of imports made 19.1 per cent, what was by 4.5 p. p.
above the level observed last year. The market of nonfood goods has been negatively affected by the permanent crisis of light industry. The situation was aggravated by the fact that the low activity of domestic business in this sector of the economy at the background of outpacing rates of growth in real household incomes, wages, and salaries in comparison with the dynamics of the retail trade turnover has provoked an aggressive increase in imports. It should be noted that in spite of the fact that this year there became perceptible the trend towards deceleration of the rates of growth and a decline in the share of textile goods in the structure of imports, this development failed to create incentives for enterprises’ operations. In January through August of 2004, the decline in production of light industry made 5.8 per cent in comparison with the figures registered in the respective period of the preceding year, including a 4.6 per cent downfall in the output of textile industry and a 12.4 per cent decline in the production of sewing industry.
One of the factors determining the structural specifics of economic development this year is the stable outpacing rates of growth in producers prices in manufacturing industries in comparison with the dynamics of the consumer price index. While in January through August of 2004 inflation on the consumer market made 107.6 per cent, the increase in the producer prices in manufacturing industries made 20.9 per cent. The dynamics of prices significantly differ across the industries oriented towards the domestic and foreign markets.
Figure. Changes in producer prices across industries in August of 2003 and 2004, in per cent of the figures registered in December of the preceding year.
According to the assessment of the Ministry of Economic Development and Trade, the producer prices of manufactured goods increased by 15.3 per cent in January through August of 2004. After the rise in tariffs on electrical power regulated at the federal level, as concerns the power purchased on FOREM, as well as natural gas and railroad freight, which was observed in January through February of 2004, there was registered a slowdown of dynamics of prices of products and services of natural Chemistry Fuel industry Coal industry Industry, total Light industry Food industry Petrochemistry Forestry complex Ferrous metallurgy Natural gas industry Oil extracting industry Nonferrous metallurgy Construction materials Oil processing industry Mechanical engineering Electrical power engineering monopolies. As concerns electrical power engineering, in this industry the tariffs increased by 11.6 per cent since the beginning of the year, since March, the growth in tariffs for final consumers regulated by regional energy commissions, has practically stopped.
In industries of the investment and consumer complexes, the rise in prices has been significantly constrained by high levels of competition, both on the part of imports, and on the part of other domestic producers. This year, the average monthly rates of growth in prices of the products of mechanical engineering (1.4 per cent), construction materials (1.6 per cent), light industry (0.7 per cent), and food industry (0.9 per cent) remained below the level of the aggregate indicator of producer prices in manufacturing industries (2.4 per cent).
As concerns the export oriented branches of industry, the dynamics of domestic prices in these industries was adequate to the changes in world prices. Since 2003, ferrous metallurgy has been characterized by the exceptionally high dynamics of prices at the background of an intensive expansion of demand for metals. After the rise in prices in ferrous metallurgy by 28.8 per cent registered in 2003, in January through August of 2004 the prices increased again by 52.9 per cent. In 2004, the complex of fuel industries was also characterized by growth in prices. Since the beginning of the year, producers prices in oil extracting, oil processing, and natural gas industries increased by 40.4 per cent, 31.7 per cent, and 84.1 per cent.
While assessing the prospects of development, it should be noted that the trends towards the increase in the share of expenditures for raw materials in the structure of production costs, which provokes a rise in prices in related industries are forming at the background of an intensive rise in prices of metals and fuels. The situation is aggravated by the recovery of the negative influence of the outpacing rates of growth in wages and salaries in comparison with the labor productivity. Besides, the improvement of positions of the oil, natural gas, and metallurgy complexes has determined a sufficient reserve of growth in wages and salaries in these sectors at the background of increasing differentiation in the levels of pay in extracting and manufacturing industries.
O. I. Izryadnova Oil and Gas Sector In January-August 2004, the development of oil and gas sector of the economy was characterized by continuation of a trend of oil and gas production growth. As compared to the same period of last year, increase in oil production was 9.5%. The world prices of oil were extremely high, which made possible to considerably increase the export earnings. The current situation in the world oil market allows to expect a continuation, in the near future, of the high level of world oil price and favorable environmental conditions for forming the revenue side of the state budget and the development of oil and gas sector.
Over the last few months the world oil prices, which have a defining impact on the situation in the oil and gas sector of the Russian economy, are extremely high. Because of cuts in oil production in Iraq and restriction of oil production by OPEC countries, the average price of OPEC oil basket considerably exceeded the upper limit of target price range $22-28 a barrel, established by the organization, while the average price of Russian Urals oil was higher than $35 a barrel (Table 1), over the last few months.
Table World Prices of Oil in 2000-2004, dollar/barrel.
2000 2001 2002 2003 2004 2004 2004 I qu. II qu. July August Brent crude oil price, 28.50 24.44 25.02 28.83 31.95 35.36 38.32 43.Great Britain Urals crude oil price, 26.63 22.97 23.73 27.04 28.94 32.54 35.24 38.Russia Source: OECD International Energy Agency.
In January-August 2004, the development of oil and gas sector was characterized by continuation of growth tendency in the production of oil and gas (Table 2). As compared to the same period of last year, increase in the volume of oil production was 9,5%, natural gas – 2,6%. At the same time, a drop of investment activity observed in oil sector: as compared to previous year, in January-July 2004, the volume of development drilling for oil decreased by 4,7%, bringing into service new oil wells – by 5,4%. Decrease continued in the volume of exploration drilling for oil (by 21,5%, as compared to previous year), which can be explained by rather high crude oil supplies. At the same time, a sharp increase in investment activity observed in the gas sector: for six months of 2004, the development and exploration drilling for gas increased by 2,5-2,7 times, as compared to previous year. In January-July 2004, in oil refining industry, degree of crude oil refining increased from 70,1% in 2003 to 71,5%, while the share of high-octane gasoline in the total production of motor gasoline increased from 51,6% to 54,1%.
Table Production of Oil, Oil Products and Natural Gas in 2000-2004, % to previous year 2000 2001 2002 2003 JanuaryAugust Oil 105.9 107.7 108.7 111.1 109.Gas condensate 103.8 106.7 112.8 108.7 119.Primary crude oil refining 102.7 103.2 103.3 102.7 101.Motor gasoline 103.6 100.6 104.9 101.2 102.Diesel fuel 104.9 102.0 104.7 102.0 101.Fuel oil 98.3 104.2 107.1 100.3 96.Natural gas, bln. cub.m. 98.5 99.2 101.9 103.4 102.Petroleum, bln. cub.m. 102.5 105.0 110.5 119.3 106.Source: Federal State Statistics Service.
This year, a noticeable rise in oil prices is observed in the internal market, which in large measure can be explained by high level of oil price in the world and better opportunity for oil exporting (including the use of rail transport). In July, the average domestic price of oil (producers’ price) in US dollars reached $90.2 per tonne, which is a maximum level of oil price for all the period of reforms (Table 3, Fig. 1, 2). At the same time, considerable gap observed in the level of domestic and world prices of oil. This year a considerable price rise is also observed for natural gas (to $9.9 per 1 thousand cub.m., which is also a record price not observed before).
Table Domestic Prices of Oil, Oil products and Natural Gas in 2000-2004, in US dollars (average producer’s prices, dollar/tonne) 2000 2001 2002 2003 2004 2004 2004 2004 July Decem- Decem- Decem- Decem- January March June ber ber ber ber Oil 54,9 49,9 60,7 70,1 70,1 79,9 87,5 90,Motor gasoline 199,3 151,5 168,8 236,9 236,8 234,2 275,1 291,Diesel fuel 185,0 158,5 153,8 214,3 224,3 225,5 244,6 248,Fuel oil 79,7 47,1 66,1 66,0 66,5 65,4 94,9 88,Gas, 3,1 4,8 5,9 4,4 8,8 9,4 9,7 9,doll./thou.cub.m.
Source: calculated according to the data of Federal State Statistics Service.
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