Dynamics of output of products and services of base economic sectors in 1999 through 2002, in % of the figures registered in the respective quarter of the preceding year ----Промышленность Строительство Торговля Выпуск продукции и услуг базовых отрасл In the course of analysis of the stability of the Russia’s economy, it shall be stressed that outpacing growth in internal demand in comparison with the external demand is a key specific factor of the economic development in 2000 through 2002. The share of internal demand in the GDP structure according to the estimates of the Ministry of Economic Development has increased up to 90.0 % as compared with 87.1 % registered in 2001.
The trend toward an expansion of demand on the consumer and investment markets persists at the background of decelerating rates of industrial development and determines an acceleration of the rates of growth in import of goods of final consumption in comparison with the dynamics of domestic production. As output of light industry stagnated, the increase in import of jersey and textile clothes made 72.2 % as compared to the figures registered in January through September of 2001, while production of footwear made 29.5 %. The growing gap in the rates of growth in domestic production of consumer goods and imports resulted in a change of the situation on the retail market. The share of imported goods in the resources of goods of the food and non-food markets made 33.3 % and 47.8 % respectively over the first 3 quarters of 2002.
An increase in the share of imports in the structure of resources of material and technical production has been also observed since mid-2000. While the output of industry increased by 3.7 % in comparison with the figures registered in January through November of 2001, the imports grew by 12.1 %. The increasing influence of competing imports significantly affected the dynamics of development of industries oriented towards the domestic market. The ratio between rates of demand for domestically produced and imported types of machinery and equipment were most seriously affected by the changes in the situation on the domestic market. The production of mechanical engineering increased by 2.2 % in comparison with the figures observed in January through November of 2001, while the imports grew by 23.2 %. As concerns the commodity resources of certain types of products of chemistry and pulp and paper industry, there the share of imports increased almost twofold in 2002.
By the end-year the situation was aggravated by the fact that at the background of persisting general trend towards decelerating rates of output in the mechanical engineering complex, the negative impact of the overproduction crisis in the motor industry became more profound. An analysis of the functioning of the domestic motor industry reveals that overproduction crises occur with a certain regularity. In the present situation, the increase in prices of cars anticipating the introduction of new customs duties on used imported cars has sharply changed the situation on the domestic market. As a result of falling demand for domestically produced vehicles, the output of cars declined almost by 1/3 in November as compared with the figures registered in October, while output of trucks fell by 12.6 %.
2кв 3кв 4кв 2кв 3кв 4кв 2кв 3кв 4кв 2кв 3кв 1999/1кв 2000/1кв 2001/1кв 2002/1кв Although the decline in production of motor industry made 0.7 % in comparison with the levels observed in January through November of 2001, it shall be taken into account that under the developed system of inter-branch links and high concentration of production the sales crisis in the motor industry negatively affects the results of operations of related enterprises and industries producing construction materials and completing parts.
The sluggishness of industrial growth occurring in the last two years is, on the one hand, an evidence of the exhaustion of the residual potential of import substitution and devaluation, and, on the other hand, of the absence of processes of restructuring of domestic business aimed at the formation of new competitive markets of domestic products. The orientation towards traditional positions on world markets of raw materials and fuel and the lack of a prospective strategy of development of manufacturing industries of the economy determine the restrained policy of participation of financial and crediting institutions in the financing of the real sector of the economy.
While the dynamics of the volumes of export may be explained by conjecture factors on the world markets of raw materials, the intensive growth in imports registered in 2001 through 2002 is related to purely internal problems. The specifics of the 3rd quarter of 2002 were favorable changes in the world business situation, which stimulated exports and supported the economy at large. As the external business situation gradually improved, the rates of growth in production of the fuel complex made 106.7 %, in non-ferrous metallurgy – 107.7 %, in ferrous metallurgy – 102.3 % in January through November of 2002.
As export revenues grew and profitability of production in extracting industries improved, the share of profits in GDP in the first three quarters of 2002 stabilized at the level registered in the preceding year. These developments allowed to maintain investment activity of enterprises and meet the state obligations relating to foreign debt. In the case the present tendencies persist, the increase in GDP will make 4.1 % in 2002, what corresponds to the parameters of the estimates, on which the budget of this year is basing.
Changes in the rates of growth in exports, imports and industrial output in 1995 through 2002, in % of the respective quarter of the preceding year.
---Industry Exports Imports O. Izryadnova IET Business Survey: Industry The closing months of 2002 have been not so good for Russia’s industry: for the second month running amounts of cash sales are diminishing, while the growth in production has nearly stopped, finished stocks are increasing, and profits are falling down. Estimates of enterprises for early 2003 are mostly pessimistic. For 2кв 3кв 4кв 2кв 3кв 4кв 2кв 3кв 4кв 2кв 3кв 4кв 2кв 3кв 4кв 2кв 3кв 1997/1кв 1998/1кв 1999/1кв 2000/1кв 2001/1кв 2002/1кв the first time in the post-default period there is expected a decrease in sales and very modest growth in output.
Changes in cash sales occurring in December did not confirm the forecasts made in the preceding month when estimates of enterprises gathered a few points of optimism. The rates of decline in effective demand increased from –4 % to –15 % (in terms of balance) and exceeded the figures registered in December of when this indicator made –10 %. In 1999 through 2002, the IET surveys registered the most intensive decline of sales in January of 2002 (- 20 %). At present, a growth in effective demand is registered only in power engineering (+ 58 %) and food industry (+ 4 %).
Negative trends of sales dynamics have at last affected estimates of amounts of sales by enterprises. The share of responses evaluating amounts of sales as “normal” decreased by 6 points over the last month and makes 32 % on the average across industries, what is the worst value registered in the second half of 2002.
Minimal values were observed in mechanical engineering (22 %), chemistry and petrochemistry (26 %).
Non-cash types of demand also continue to decline. In December, the rates of decrease in barter, promissory notes, and offset payments did not change significantly. A growth in barter transactions was registered only in non-ferrous metallurgy, promissory notes and offsets payments grew in power engineering and food industry. Therefore, at the moment all types of demand are declining across Russia’s industries. At the same time, the decline in cash sales (- 15 %) is more intensive than the decrease both in barter transactions (- 9 %), and promissory notes and offsets (- 4 %). However, positive values of the substitution index (see the Figure) show that the substitution of non-cash types of demand for effective demand persists.
At the same time, it shall be noted that since September (when there was registered the year’s maximum) the value of the index has dropped practically to zero. Negative values of the index were observed twice in 2002:
in January and May. Seasonal downturns in sales at that time were so pronounced that non-cash demand supplanted effective demand in industry. It is rather probable that similar developments will take place in January of 2003.
In the situation of the absolute decrease in cash sales enterprises have to keep a check on the growth in production. In the 4th quarter, the intensity of output decreased by 22 balance points. Reports about an increase in output prevailed only in power engineering (+ 100 %), forestry complex (+ 49 %), and food industry (+ 26 %).
However, it seems that the adjustment of production turned out to be insufficient. The balance of assessments of finished stocks remains positive (i.e. there are still excessive stocks) and increased by points across all industries over the last month. A decrease in excessive stocks was registered only in chemistry, petrochemistry, and food industry. A constant lack of stocks was observed only in the forestry complex.
Real profits of industrial enterprises continue to decline. In the 4th quarter, the balance of change in this indicator remained practically at the same level – the level of intensive decline. In December, surveys registered an absolute increase in profits only in power engineering and metallurgy.
The balance of estimates of changes in effective demand has become negative for the first time since the beginning of 1999. Therefore, expectations of a decline in cash sales have prevailed in the Russia’s industry for the first time since the default. Most probably, these expectations are of seasonal nature and take into account the experience of the last year when an absolute decrease in demand started in December, peaked in January, and persisted in the first half of 2002. The minimal balance of estimates in 2001 was also registered in December, however, it made + 5 %, while the minimum of 2000, which occurred in December was at + %. On the other hand, the negative balance of assessments seems to reflect also the fact that enterprises realize that the period of the rapid post-default growth has ended. Only enterprises in power engineering are expecting a growth in cash demand.
The balances of estimates of non-cash types of demand remain negative. Enterprises do not expect any increase in the amounts of barter, promissory note, and offset transactions either in the industry at large, or in individual branches. A growth in barter is probable only in the forestry complex, while amounts of promissory notes and offsets may increase in power engineering. At the moment enterprises barter about 9 % of their output, while promissory notes and offsets account for 11 %.
Estimates of changes in output fully correspond to the pessimism concerning cash sales. Since August, the balance of enterprises’ plans with regard to changes in output has dropped from + 38 % to + 9 %. Russian enterprises have not planned such a modest growth in output since the beginning of 1999. The conformity between the planned changes in output and expected changes in effective demand is at the moment registered for 71 % of enterprises. Such a conformity prevails in construction industry (84 %) and light industry (80 %).
At the same time, 21 % of enterprises in the Russia’s industry are going to change volumes of their output “anticipating” the expected dynamics of sales, what most probably will result in a growth in their excessive finished stocks.
S. Tsukhlo The effect of changes in electric power tariffs on prices and volumes of output in the RF economy5.
An estimate of the effect an increase in tariffs of natural monopolies, including tariffs on electric power and prices of energy resources and consumer prices is a serious problem both for natural monopolies themselves, and the governmental agencies, which by indexing tariffs at rates outpacing inflation declare the obligation to keep the rise of prices within the limits determined by the indicators set forth in the federal budget. In the course of the analysis of the impact of an increase in tariffs on prices and volumes of output, the study will focus on the search for answers to three following questions:
- In what way an increase in tariffs may affect consumer prices, in particular, prices of goods being components of the standard consumer basket and prices of public utilities and housing services.
- In what way an increase in tariffs on electric power may affect producers’ prices in industry at large and in individual branches.
- In what way an increase in tariffs on electric power may affect the volumes of output in the economy or industry at large (an estimate of the impact on economic growth), and an estimate of the impact of the probable increase in tariffs on the volumes of output across individual branches.
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