O. V. Kuznetsova The Real Sector of the Economy: Factors and Trends In the beginning of this year, the macroeconomic situation was determined by the impact of the trends formed in the second half of 2004. Due to the exceptionally favorable business situation on the world market of mineral and raw material resources, the rates of growth in external demand, which outpaced the dynamics of the domestic market, had the dominating impact on the structure of economic growth. In January through February of 2005, the industrial production index made 103.9 per cent, the index of the amount of construction works was at 105.5 per cent, and the index of agricultural produce made 99.3 per cent, while exports grew by 33.0 per cent.
The slowdown of the rates of development of the domestic market was accompanied by the changes in the proportions of investment and consumer demand. While the retail trade turnover increased by 10.1 per cent by January – February of 2004 the increment in investment in the fixed assets made 7.per cent and was by 5.9 percentage points below the figures registered in the preceding year.
It should be noted that in the beginning of the year, the growth in the retail trade turnover occurred at the background of a decline in the real household incomes by 2.2 per cent as compared with the figures registered in January through February of 2004. At the same time, in contradistinction to the situation observed in the previous years, in the structure of cash household expenditures the share of expenses borne in relation to purchase of goods and payment for services has sharply increased. The surge of consumer activity was supported by a decline in the cash on hands of the population, as well as the share of savings in the household incomes. In comparison with the figures registered in January of 2004, the expenditures for purchase of goods increased by 10.8 percentage points, while the share of savings declined by 5.6 p. p. No doubt that such a structure of household expenditures was affected by the calendar specifics, but apparently the increasing inflationary expectations of the population observed at the background of the acceleration of dynamics and significant transformation of price proportions also should not be excluded. While consumer prices have grown by 3.9 per cent since the beginning of the year, the price index of food products made 102.7 per cent, at the same time, the price indices of nonfood items and paid services were registered at 100.7 per cent and 111.2 per cent respectively. Across monitored types of services, the prices and tariffs in the sphere of housing, public utilities, and transport grew at the higher rates. In January through February of 2005, the index of tariffs on housing and public utilities services made 124.1 per cent, what equals to the change in this indicator registered over the whole preceding year.
The structural shifts observed in industry were characterized by the outpacing rates of growth in manufacturing industries in comparison with extracting industries, what was characteristic of the recovery growth of the Russian economy. In the period from 2000 till 2004, at the average annual rates of growth in industry making 106.1 per cent, this indicator made 106.5 per cent, 109.4 per cent, and 107.1 per cent in the raw material complex of industries, the investment and consumer sectors, respectively. In spite of significant fluctuations of the rates of growth registered across industries over the last 5 years, on the whole there is observed the shift from the growth basing on the utilization of the traditional factors of the natural and raw material potential for the most part oriented towards the external markets to the formation of the resources of development of the domestic market. In 2004, the index of growth in extracting and manufacturing industries increased by 6.5 per cent and 9.2 per cent respectively, while the industrial output grew by 7.3 per cent. The beginning of 2005 was characterized by the acceleration of the rates of increase in manufacturing industries occurring at the background of declining dynamics of extracting industries and stagnation of production and distribution of electrical power, natural gas, and water. However, these developments failed to compensate for the sharp decline in production observed in January, and the increase in manufacturing industries made 5.9 per cent as compared with 9.6 per cent registered in January through February of 2004.
I II III IV Январь- февраль 2004 Промышленность Строительство Транспорт Оборот розничной торговли Fig. 1. Changes in the rates of output of goods and services as broken down by the types of activities in 2004 through 2005, in % of the figures registered in the preceding year.
The slowdown of the rates of increase registered in extracting industries to 102.3 per cent in comparison with 108.8 per cent registered in January through February of 2004 occurred as a result of moderate dynamics of oil extraction (103.2 per cent as compared with 111.5 per cent) and a decline in the extraction of metal ores by 1.6 per cent. The moderate rates of extraction of mineral resources were observed at the background of the changes in the ratio between the external and domestic demand. The favorable situation existing on the world markets created incentives for production of goods on the part of both export oriented branches of the extracting industry, and such manufacturing industries as metallurgy, wood working, and chemistry.
While the rates of increase in export of crude oil outpaced the dynamics of domestic consumption, the volumes of primary refining of crude oil grew by 6.5 per cent, what determined the acceleration of the rates of increase in production of gasoline by 8 p. p. in comparison with the figures registered in January through February of 2004, while the output of diesel fuel grew by 3.8 p. p. The fact that the supply exceeded demand on the domestic market of oil and oil products resulted in a decline in producer prices by 5 per cent in comparison with the figures observed in December of 2004, while the prices in retail trade decreased by 1.9 per cent.
As concerns metallurgy, this year there persisted the trend towards the outpacing rates of growth in production of finished metal items (104.6 per cent) in comparison with the rates of growth observed in metallurgy (101.4 per cent).
As concerns the formation of the dynamics and structure of domestic demand, since the second half of 2003 the leading positions here have been taken by the industries producing machinery and equipment. In January through February of 2005, the index of production of machinery and equipment made 124.5 per cent as compared with 117.5 per cent registered in the respective period of 2004, while the index of production of electrical, electronic, and optical equipment made 117.5 per cent, what was at the level observed in the preceding year.
In January through February of 2005, the production of vehicles and transport equipment slowed down to 102.0 per cent as compared with 120.7 per cent registered in the respective period of 2004.
The output of cars decreased by 7.9 per cent in January through February of 2005, what was caused by a significant decline observed in January. Due to the fall in demand for the majority of the popular domestic models of trucks, the respective production declined by 20.7 per cent as compared with the figures registered in the respective period of the preceding year. Since the competitive capacity of domestically produced vehicles is low, there was observed a growth in demand for foreign models, both imported and produced in the territory of Russia. In January through February of 2005, joint ventures increased their production of cars almost 1.6 times in comparison with the figures registered in January through February of 2004.
I Q II q III Q IV Q 01-----2 2004 Industrial output indices Extraction of mineral resources Processing industries Fig. 2. Changes in the rates of industrial output as broken down by the types of production in 2004 through 2005, in % of the figures registered in the preceding year.
In the situation characterized by a growth in investment demand, the standing of mechanical engineering in the structure of the Russian economy seems to be not sufficiently favorable in the near term outlook. In the course of analysis of the trends of development of mechanical engineering over the last two years, there should be taken into account the following developments. First, import of machinery and equipment grows at outpacing rates in comparison with the dynamics of domestic mechanical engineering. The increasing role played by imported machinery and equipment is determined both by insufficient scale of domestic production, and low competitive power of many types of technical means. Second, the maintenance of sufficiently high rates of growth in production of machinery and equipment was ensured primarily by the expansion of demand for mechanical and general purpose equipment. Third, at the background of an increase in the revenues of the economy derived from exports, there was observed the contraction of investment demand for special purpose equipment on the part of the fuel and energy industries, and metallurgy, while the producers of machinery and equipment themselves reduced their demand for the products of tool making industries. The condition of investment industries is the key technological factor limiting the possibilities to settle the urgent problems of reconstruction and modernization of production on a new technological basis.
In the beginning of this year, the production of consumer goods is characterized by the acceleration of the rates of growth in the output of food products at the background of a crisis observed in textile, clothing, leather, and footwear industries. An analysis of the development of the industry reveals that the lack of serious qualitative changes in the technology and structure of production of consumer goods will not permit to maintain high rates of growth over a long time. The limited material and production base, on the one hand, and the declining competitive power of domestic goods in comparison with imports given the present ratio between exchange rates of currencies, on the other hand, result in the expansion of niches for foreign products. While in 2004 the share of domestically produced goods in the group of food products on the domestic market made 66 per cent, 55 per cent of the retail trade turnover was formed at the expense of imported goods.
O. I. Izryadnova IET Business Survey: Industry in March of The results of the March IET survey indicate the intensification of positive trends observed in the Russian industry. The rates of growth in sales have reached the values never registered in through 2005. The rapid rates of growth in demand for industrial products permitted enterprises to increase the volumes of output without a high risk to outpace demand. The optimism of forecasts of changes in demand and output persisted at the highest level.
The data presented by the Rosstat indicate that the rates of industrial recovery accelerate. In February, the average daily output increased by 0.6 per cent as compared with 0.3 per cent on the average observed in the 4th quarter of 2004 and January of 2005 (as adjusted for the seasonal factors). In certain branches of industry, there were observed the following most important positive trends: a growth in oil extraction registered after the four months stagnation; acceleration of the rates of output in ferrous metallurgy; resumption of the rapid growth in mechanical engineering observed after the January pause; persistent increase in the volumes of output in food industry. Among negative trends, there were registered the following: the persistence of stagnation in light industry and continuing slump in medical industry. Therefore, the official statistical data for February (based on the preceding OKONKh classification) have confirmed the conclusion about an acceleration of the industrial growth in the beginning of 2005. The results of the last (March) survey carried out by IET indicate the intensification of positive trends observed in the Russian economy.
In March, the intensity (balance) of growth in demand before the adjustment for the seasonal factors made + 28 per cent. Russian industrial enterprises have never reported such a rapid increase in sales in 1993 through 2005. After the adjustment for the seasonal factors, the value of this indicator made + per cent, what practically did not affect its record value. Only in June of 1999 there were observed higher rates of growth in sales (+ 17 per cent). It should be noted that at that time, a few months after the default and Ruble devaluation, it was much more easy to increase sales than in the present situation, where all facts indicate the pressure, which the appreciating Ruble and increasing imports put on the domestic industry. The March survey indicated that sales grew across all industries, the most intensive growth was reported in ferrous metallurgy, chemistry, petrochemistry, and mechanical engineering.
Although the satisfaction with the volumes of sales has not yet reached the record values registered in the middle of the preceding year, when the majority of the Russian enterprises considered that the demand for their products was normal, the share of “normal” answers at least stopped to decline. At present, such reports dominate in ferrous metallurgy (70 per cent), food industry (65 per cent), chemistry and petrochemistry (61 per cent), and the forestry complex (52 per cent). Across other industries, the number of enterprises indicating normal demand is less than 50 per cent.
The rapid rates of growth in demand for industrial products permitted enterprises to increase the volumes of output without a high risk to outpace demand. In March, the balance of changes in output increased to + 47 per cent, what also is the absolute record over the whole period of monitoring. The adjustment for the seasonal factors reduced the value of this indicator made to + 32 per cent; however, it practically did not affect its record value: according to reports, output has never yet grown at such rapid rates. At present, the dynamics of output corresponds with the dynamics of demand at 66 per cent of enterprises, what is one of the highest (i.e. the best) values of this indicator.
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