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In contract to last year, the structural shifts in 2006 took place against the background of an accelerated growth demonstrated by consumer commodities. As compared to the period of January through October 2005, the growth rate of foodstuffs production went up to 105.3 %, that of textile and garment production - to 107.8%, and that of leather and leather products and footwear - to 113.2 %.

On the market of intermediate-demand commodities, accelerating growth rates were observed in metallurgy - by 10.2 %, in the production of coke and oil products - by 6.0 %, and in the production of rubber and plastic goods - by 11.1 %.

The situation on the market of investment commodities was developing against the background of an accelerated growth in the export of machinery, equipment and means of transportation (148.2 %), as compared to the changes taking place in domestic production and in the investments in fixed assets.

The situation in 2006 was significantly influenced by a rather pronounced slowdown in the rate of output in machine-building, differentiated by types of activity. As compared to the period from January through October 2005, the rates of production of machinery and equipment went up by 0.5 %, and those of means of transportation by 0.3 %, while the production of electrical, electronic and optical equipment decreased by 1.5 %. The disproportions in the structures of demand and supply, and the low competitive capacity of machine-building, in terms of product quality and customizing potential contributed still further to the growing trend toward increasing the role of imported machines and equipment in the structure of resources on the market of consumer and material-technical commodities. The domestic motor-car industry was especially sensitive to the changing situation on the domestic market. While the import of passenger cars grew, in physical terms, by 31.2 %, and that of freight cars - by 35.3 %, the reduction in the domestic production of such commodities amounted to 10.5 % and 17.8 %, respectively. In view of the existing structure of the domestic production of investment commodities, imports remain one of the main sources for the upgrading of fixed assets, as well as for industrial reconstruction and modernization of production.

2003 2004 2005 -production of machinery and equipment production of electrical equipment production of means of transportation and equipment imports of machinery and equipment investments in fixed assets Figure. Changes in the rates of production in machine-building (by types of activity), investments in fixed assets and imports of machinery and equipment in January through October 2003- 2006, as % of the corresponding period of the previous year.

Accoding to the data of the RF Ministry of Economic Development and Trade, the accumulated growth potential has made it possible to revise the official forecasts for the year 2006 toward increasing GDP from 6 % to 6.6 % and up to 6.8 % - 6.9 %, and the growth of investments in fixed assets - from 111.5 % to 113.2 %.

According to the macroeconomic indices forecasted for the period until the end of the year 2006, calculated by the IET on the basis of the existing trends and scenario-based changes in the functioning of the national economy, the persisting high rates of growth in external and domestic demand remain the main growth factors. The expected GDP growth is 106.7 %, the growth in investments in fixed assets 111.8 %, the growth in industrial production 103.4 %, and that of retail trade turnover 109.9 %. Against this background, the unemployment level was decreasing from 7.6 % in 2005 to 7.% in 2006.

O. Izriadnova The IET Business Surveys: November The first data on the state of the national industrial sector in November failed to prove pessimistic forecasts of the prior month. Instead of then expected deceleration of the growth in output, Russian enterprises have managed to ensure its acceleration. It is worthwhile noting this occurred under unchanged growth rates in demand, which, given a rising proportion of enterprises with an insufficient stock of finished produce, evidences their intention to increase their reserves.

According to Rosstat, October 2006 saw the continuation of the trend to growth in industrial output.

In the first month of the 4th quarter the average daily output grew by 0.6% vis--vis the average monthly 0.4% reported over the 3rd quarter (exclusive of seasonality). While the Rosstat methodology suggests that in 2006 the growth rate of industrial output should make up 104.2-104.5%, the one applied by the Center for Macroeconomic Juncture equals 105.0-105.3%.

According to enterprises assessments, the growth rates in sales of industrial produce have remained practically unchanged since the 3rd quarter. After exclusion of seasonality during the period in question the intensity of growth in demand across the industrial sector as a whole was 12 to 15 balance points. More specifically, in November it made up 14 b.p. All the sectors reported sales to be on the rise, except for those for textiles, clothing, electric equipment and automobiles. The growth rates in demand (after cleansing from seasonality) were noted in production of pulp, paper, timber, machinery and equipment, radio and communication equipment, vehicles.

The stabilization of growth in demand lowers the level of satisfaction with its volumes. Given that in September 2006 there were 67% of national industrial producers that assessed the respective index as normal (which became an unbeaten record over all past 174 surveys), this rate consequently slid to 62% in November. However, given that in early 2006 the proportion of responses below norm had been 50-51% and then lunged to 20 points, the fluctuations in dissatisfaction with demand during recent months within the range between 29-33% do not appear frightful.

Enterprises estimate the November growth rates of industrial output became at 6 b.p. greater (less seasonality). The coincidence between changes in output and demand was reported by 64% of enterprises (which became one of the worst, i.e. minimal, results of 2006), while 23% of producers were boosting their output at a pace greater than that of demand (and, most likely, they replenished their stock of finished goods) and another 13% saw the change of their output lagging behind changes in sales (to fulfill their suppliers orders, they had to resort to their warehouse stock).

However, so far intensification of production growth under a stable rise in demand has failed to help Russian producers restore the previous (characteristic of the period between 2001 and 2005) surplus of stock of finished goods and, accordingly, easily satisfy new orders by using the warehouse stock. The number of enterprises that assess their reserves as insufficient is growing (during last 4 months the proportion of such assessments has been 15-18% vs. just 12% reported in late 2005). Meanwhile, the proportion of enterprises with normal stock of finished goods has been relatively stable over recent months and fluctuated slightly between 60 and 63%.

One of the causes for the fall in the volume of warehouse stock of finished goods may become contraction in the overhang formed by idle production capacities, which can be easily deployed to start an output. By 4th quarter 2006 only 17% (the minimum rate ever noted between 1993 and 2006) of Russian industrial enterprises enjoy such a surplus. The average annual surplus rate was: 2005- 23%, 2004- 24%, 2003- 28%. Most likely, the composition of excessive capacities from year to year looses actually competitive equipment, which is why it becomes increasingly challenging to promptly boost production by using them. Meantime enterprises are short of their own funds to crate new capacities (as reported by 81% of them), or they re challenged by a great interest rate on loans (30% of respondents), or find it difficult to get a loan (21%), or find costs of equipment high (40%).

However, so far the situation with capacities in the national industrial sector does not appear as critical, as it is with qualified staff (see the previous review). While the rate of provision of the industrial sector (or industrial growth) with capacities is advancing, the provision of it with cadres has already begun to decline. It is clear that production advances basing on the remaining and still idle capacities, as well as newly established ones (with the former source, anyway, not yet exhausted, for capacities are not like people, and they dont quit an enterprise, which is why they are in excess at 19% of enterprises, while only 12% can boast a surplus of staff), while the other source, that is investment, at the very least, is growing more and more full-flowing. By contrast, the sources of staff in the industrial sector find themselves in a far complex situation, for the remaining excessive employment has become lower and its quality poorer (for it had been the youngest, most qualified and mobile who used to leave enterprises in the 90s). Meanwhile, the respective training system, which still is the governments feud, is incapable now to recruit, on behalf of industrial enterprises, the number of new workers needed for industrial growth.

The boosted production growth rates have enabled enterprises to cease sinking profits. While between September and October the respective cleansed from seasonality indices were displaying their fall (down to -6 b.p.), in November, the balance by the industrial sector as a whole became zero there was no growth or rise in actual profits.

Forecasts of changes in demand are still unchanged: cleansed from seasonality, these data projects a 18-19 b.p. growth in sales for the fourth straight month. Some fall in sales is envisaged only at the level of certain industries, such as paper and pulp, metallurgy and transport.

Optimism of plans of output, which had been on decline since April this year as now discontinued to fall in November, enterprises production plans leaped by 6 points at once (less seasonality). An absolute decline in output may occur only in the sector for metallurgy.

S. Tsukhlo Foreign Trade Underlying the rise in the value volume of Russias foreign trade between January and September 2006 was a considerable growth in export supplies, thanks to a favorable state of affairs on the market for energy resources and a notable rise in import steered by the soaring domestic demand. However, growth rates of the value volume of the nations foreign trade turnover have slowed down, because of the deceleration of the price rise across main Russian exports and imports and the physical volumes of Russian export to Far-Abroad countries.

The indicators of Russias foreign trade continue to display a stable growth. Russias foreign trade turnover computed by the balance-of-payments methodology grew by 24% in September 2006 vs.

September 2005 and made up USD 40.4 bn., but it proved to be down at 4.9% vis--vis August 2006.

2000 2001 2002 2003 2004 2005 Balance Export Import Figure 1. Main Indices of Russias Foreign Trade (as USD Bn.) The export volume in September 2006 was worth a total of USD 25.9 bn., or at 19% greater than in September 2005, while the volume of import supplies surge up to 14.5 bn., thus being at 34.2%. over Se Se Se Se Se Se Se Ma Ma Ma Ma Ma Ma Ma Jan Jan Jan Jan Jan Jan Jan the respective index of September 2005. The positive trade balance consequently made up USD 11.bn., or at 3.9% more than a year earlier.

The growing value of Russias export is still boosted by the rising world prices for major minerals and energy sources in particular. Meanwhile, the growth rates of export value volumes decelerated notably, which can be explained by the slowdown of the price rise across main commodities.

According to the Bank of Russia, the world prices, with account to the structure of Russias export across the totality of goods accounting for over 80% of its value, dropped by 7.4% in September vs. the prior month. Between January and September 2006 they were at 25% greater compared with the respective period of the prior year.

The decline in oil prices, which had started in August 2006, continued in September. It was further steered by the decision by the OPEC session held in Vienna on 11 September to keep the oil production quotas unchanged till the end of the year and reports on a fairly high level of industrial reserves of oil and petroleum derivatives in the US.

In September 2006 vis--vis the prior month the average oil quotations slid by 13.5% (down to USD 62.1/barrel), with Urals being traded at 14.1% down (USD 58.6/barrel). Between January and September 2006 vs. the respective period of the prior year the average oil prices were at 26.3% higher, while Urals was being traded at 26.7% higher.

September 2006 saw a drop in prices for oil products vs. the prior month, with premium gas loosing 23.0% of its price, diesel fuel 8.8% and mazut 11.4%. Between January and September 2006 oil products were traded on average at a price higher than over the respective period of 2005 (at the time, premium gas was at 24% more expensive, while diesel fuel at 20% and mazut- 36%).

Upon a two-month period of monitoring of prices for Russian Urals on the world markets, the RF Government decreased export custom duties on crude oil from USD 237.6 to 180.7/t., while export duty on light oil products was reduced from USD 172.4 to 134/t. and that on black oil products from USD 92.9 to 72.2/t.

In September 2006 vis--vis the prior month the European prices for natural gas grew by 0.7%, while in the US they fell nearly at one-third. Overall, between January and September 2006 vs. the respective period of 2005 Europe experienced a 39% rice rise for natural gas, while the US customers benefited from a respective 14% price downfall.

In September 2006 vs. the prior month the world prices for products of Russias fuel and energy complex fell at 9.5% on average. Between January and September 2006 they were higher at 29% vs.

the respective period of the prior year.

In September 2006 aluminum prices rose by 0.5%, copper prices lost 1.1% and nickel 2.4% vs.

August 2006. Overall in January-to-September 2006 period prices for non-ferrous metals were greater vis--vis the respective period of 2005 (copper- nearly twofold, while aluminum and nickel almost 1.4 times).

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