The changes in consumer behavior were to a certain degree being determined by structural shifts of the prices in the main commodity groups. While the consumer prices on the whole in January through November 2005 went up by 10.0 %, the prices of food commodities since the year’s beginning increased by 8.4 %, and those of non-food commodities – by 5.9 %. The accelerated inflation rate, as compared to the year 2004, was responsible for the increase of the share of consumption expenditures in the structure of money incomes application to 72.7 %, against 70.0 % in the previous year.
The dynamics of effective demand in 2005 were to a substantial degree being influenced by an increasing role of the expenditures on services. The market of commercial services to the population in January through November 2005 was being formed under the influence of the rise in prices and tariffs by 20.0%, against 16.6% in the previous year. Of the services under observation, the highest growth rates in 2005 were demonstrated by the prices and tariffs in the housing and utilities sector (32.5%), on transport services (12.2%), medical care (17.6%) and education (15.0%). As result, the housing and utilities services became topmost in the structure of commercial services rendered to the population and amounted to one-fourth of the total volume of commercial services. This was one of the factors responsible for the expenditures on services in the structure of the population’s money incomes having grown almost by 1.5 p.p., as compared to 2004. Besides, a dynamic growth in the number of passenger automobiles owned by households, as well as an increased scope of housing construction at the exв в в в в в в в в в в в в в в в в в в в в в в в в в в в к к к к к к к к к к к к к к к к к к к к к к к к к к к к pense of the population’s savings proper, was promoting the development of the corresponding services markets. Among the public service rendered to the population, more than a half was constituted by the aggregate share of services pertaining to repairs and maintenance of means of transportation, machinery and equipment (23.4%) and those pertaining to housing renovation and construction (28.8%). The dynamic growth of the services market for repairs and maintenance of means of transportation, coupled with growing volumes of sales of passenger cars and the growing demand of the population for fuels and lubricants, all produced a significant influence on the structure of the population’s current consumption expenditures. It should be noted that the dynamics and structure of the population’s expenditures were also to a substantial degree influenced by a reestablished tendency toward growth of the prices of motor petrol in March through September 2005.
I Q II Q III Q October – November 2005г -Consumer price index meat and poultry motor petrol housing and utilities food commodities non-food commodities commercial services to population Figure. Changes in consumer price indices, in 2005, as a percentage of a previous period Table Industrial production indices, by type of economic activity, in 2002-2005, as a percentage of a previous year 2002 2003 2004 2005* Industry, total 103.1 108.9 107.3 104.Extraction of mineral resources 106.8 108.7 106.5 101.Extraction of fuel and energy natural resources 108.9 111.2 107.5 102.Processing industries 101.1 110.3 109.2 106.Production and distribution of electric power, gas and water 104.8 103.3 100.1 101.January-November Source: Rosstat.
The industrial production index in January through November 2005 was 104%, as compared to 107.6 % in the previous year. The slowing dynamics were due to a decreasing growth rate of the extraction of fuel and energy natural resources - to 101.1 % against 106.7 %, including that of oil - to 102.2 % against 109.3 % in January through November 2004. In 2005, the trend of an accelerated growth of the processing industries, as compared to the extraction of mineral resources, became more prominent; however, under the influence of an intensive growth in imports, the slow-down in the output rates of domestic commodities was also stabilized. While imports grew by 22.2 %, the output growth in the processing industries in January through November 2005 was 6.1%, against 9.6 % in the previous year.
The dynamics in the processing industries differ rather considerably depending on the specific types of economic activity. In January through November 2005, the growth in the production of machinery and equipment amounted to 2.6%; in that of electrical, electronic and optical equipment – to 25.0%; and in that of means of transportation and transport equipment – to 5.7%. The high growth rates of the production of machinery and equipment were sustained mainly at the expense of an expanding demand for the products predominantly oriented at the domestic market: those of machinebuilding for railways and power engineering, the production of instruments and appliances, and means of communication. Besides, there was a stable growth of the demand for the equipment for branches of the consumer production complex. Among the factors that were positively influencing the production dynamics, the increased output of commodities licensed by foreign companies, with the use of foreignmade parts, can be pointed out. The accelerated growth of output by joint ventures with the participation of foreign capital has changed the competition conditions. In particular, in the motor-car industry one of the main causes of the decreasing output of Russian passenger cars and the reorientation of demand toward foreign products, in face of a dynamic growth of the population’s incomes, was the more flexible pricing and sales policies of foreign companies’ dealers. Among the negative factors that were influencing the dynamics of machine-building in 2005, one can mention certain sporadic phenomena characteristic of an overproduction crisis in the motor-car industry, as well as an unstable demand of the fuel industry for domestic technologies, against the background of growing exports incomes and an increasing scope of the imports of machinery and equipment.
2004 -Figure. Changes in rates of production in the main processing industries in January through November of 2004 and 2005, as a percentage of a previous year.
The complex of the consumer-production industries was unable to sustain high growth rates for a long time, which was largely due to the absence of any serious qualitative changes in production technologies and structure. In 2005, the consumer-production complex was still displaying a tendency for diminishing investment activity. The growth index in the consumer-production complex in 2005 was optical equipment and footwear Processing industries Production of machinery and equipment Production of electrical, electronic and Food production Oil products Non-metal mineral products Metallurgy production Chemical production Production of machinery and equipment Production of textiles and garments Timber processing and timber products Rubber and plastic products Pulp and paper production Production of leather, leather products 4.3% against 2.9% in 2004, which represented a record low of the last seven years. The structure of the consumer commodities production was to the highest degree being influenced by the downward trend in the production of textiles and garments (by approximately 3 % annually), which had been inevitably present since 2002.
The production of textiles and garments belongs to the category of processing industries, being characterized by a critical level of wear and tear of fixed assets. The retirement coefficient of fixed assets there is four times higher than that of capital renewals. Besides, the production of textiles and garments is marked by an absolute reduction of the volume of fixed assets. Production crisis resulted in a dramatic fall in the demand for labor. In the last three years, the average annual number of industrial production personnel in the light industry wend down by more than 12 %.
Although the dynamics of the food industries were demonstrating a gradual slowdown in growth rate, their unchanged positions on the Russian market were sustained by a rapid flow of investments in fixed assets and the creation of new jobs. In 2005, the share of investments in the food industries went up by 0.8 p. p., while the rates of growth in the food industries increased to 4.9%.
One of the factors that determined the structural peculiarities of economic development in 2005 was the stable accelerated growth of the prices set by the producers of industrial commodities, as compared to the consumer price index. While inflation on the consumer market in January through November 2005 was at the level of 110.0 %, the growth in the prices set by the producers of industrial commodities amounted to 15.8 % The dynamics of prices differ considerably between the extracting and processing industries. While, as compared to early 2005, the prices of the commodities produced by the extracting industries increased by 44.2 %, those of the production and distribution of water and gas – by 12.6%, and the tariffs on cargo shipments - by 16.5%, the price index of the manufacturers of the processing industries was 107.9 %. In 2005, the changing price ratios in industry were being induced by an intensive rise in the prices of fuel products. The accelerating growth of prices of fuel and energy products was occurring against the background of a changing structure of the process of the energy resources. In January through October 2005, the index of oil prices was 166.8 % against 166.2 % in 2004, that of gas – 134.9 % against 211.5 %, and that of electric power – 177.3 % against 111.0 %. In 2005, the tariff on the electric power delivered to consumers was 2.5 times in excess of the average gas price, whereas in 2004 this ratio amounted to 2.9 times, and in 2003 was as high as 5.8 times. The rather reserved pricing policy of domestic producers of the commodities for end-product demand was to a considerable degree being influenced by a changing competition environment and an increasing pressure of imports, in face of the rouble’s strengthening.
Table Producer’s price indices, by types of economic activity, in 1999 - 2005, in December as a percentage of the December of a previous year 1999 2000 2001 2002 2003 2004 2005* Industry 170.7 131.9 108.3 117.7 112.5 128.8 115.Extraction of mineral resources 225.2 149.1 104 125.8 101.8 164.7 144.Processing industries 167.6 124.8 106.3 113.2 115.8 121.5 107.Production and distribution of electric power, gas and water 117.7 141.6 127.4 126 114.5 112.5 112.Tariffs on cargo shipments 118.2 151.5 138.6 118.3 123.5 109.3 116.*)January-November Source: Rosstat.
The considerable increase in the profitability of the extracting industries occurred due to a favorable combination of the factors associated with the prices on the international market of fuel and mineral raw materials. Besides, because of the existing ratios of domestic and international prices, a substantial portion of the income generated by the increased rouble-denominated price of the product sold for foreign currencies has also been transforming into profit. The trend of an accelerated growth in the prices of the extraction of mineral resources, as compared to the dynamics of the prices of the products of the processing industries, resulted in a similarly directed effect. As a consequence, the share of the export-oriented industries in the economy’s aggregate profit demonstrated a significant growth.
The growth of incomes in the exports sector produced the most significant effect on the associated branches of the infrastructure – transport, communications, and trade, while having almost no effect on the branches predominantly oriented to the domestic market. The situation in the processing industries oriented to the domestic market was less favorable. In face of a high level of material costs, the increased prices of raw materials represented a factor which was restricting the rate of profit growth and resulted in lowered product profitability.
In accordance with the macroeconomic indices forecasted for the period until the end of the year 2005, as calculated by the IET, the GDP growth is expected to be 106.4%, that of investments in fixed assets – 110.3 %, and that of industrial output - 104.1 %.
O. Izriadnova The situation in industry in December For a second successive month, Russian industry has been demonstrating rather good indicators of growth in demand. Official statistics have already confirmed production growth in November. The results of December are expected to be approximately the same. However, the January holidays will certainly adjust the estimates of the stocks of finished goods in the negative direction, and are depressing the forecasts of sales and the production plans of enterprises.
According to official statistics, growth in industrial production sharply accelerated in November.
During this month, industrial output grew by 4.7 percent, as compared to just 1.8 percent in October.
By the estimates of the TsMAKP, with allowance made for seasonality, industrial growth reached its record high of 0.9 percent, which is thrice as large as the monthly average for the year. In investment machine building, the growth impulse was brought about by a rapid increase in the production of electrical equipment and railway rolling stock. The production of mechanical equipment continued to decline. A sharp reduction in output was demonstrated by the production of leather goods, footwear, textiles and garments, and pharmaceuticals.
The positive tendency registered by the November survey and later confirmed by the Rosstat, will, most likely, continue in December as well, but with an adjustment for the approaching nationwide New-Year holidays.
At last, effective demand for industrial products has started to grow, and, importantly, to grow rather intensively. The results demonstrated by industry in the end of the year had not been achieved for quite a long time. A higher December rate of sales gain was registered five years ago. And after an adjustment for seasonality, the balance of change in this major market indicator grew by as much as points and reached +9 percent. It was the most intensive sales gain in nine months. The December growth of this indicator resulted from the situation in the metallurgical, chemical, petrochemical, and food industries.
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