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The Ist Quarter 2000 showed the maintenance of positive trends that had emerged over the post- crisis period of time. The current situation favors the renewal of business activity in the real sector. According to preliminary estimates of the RF Ministry of Economy, in the Ist Quarter the increment in GDP made up 8.0% vs. the respective period of the prior year. The dynamics of GDP both in 1999 and in the Ist Quarter was under the dominating impact of the intensive industrial development. In the Ist Quarter 2000, index of industrial output reached 111.9% relative to its respective period of the prior year.

In the Ist Quarter 2000, the acceleration of the pace of industrial output was noted practically in all the industrial and production complexes. According to the RF Ministry of Economy’s estimates, the structure of industrial output has experienced some improvement: in 1999 the proportional weight of manufacturing sectors in the overall volume of industrial output grew by 1.4 per cent points relative to the prior year, and in the Ist Quarter 2000- by 1.5 per cent points vs. 1999.

It is the remaining favorable state of affairs in the world market for fuel and mineral resources that became the factor that determines the acceleration of the growth rate in the export- oriented industry branches of the mining sector of the economy. As a result, during the period in question, the volume of output in the ferrous metallurgy grew by 27.2% against its respective period of the prior year, chemicals and petrochemicals- by 25%, forestry, wood- working, paper and pulp industry- 19.3%, non- ferrous metallurgy- 15.3%, and the gas sector- by 6.8%.

As concerns the manufacturing sector, the renewal of a positive dynamics there is related to the growing demand for domestic products and ongoing import- substitution processes in the domestic market. Under the impact of these factors, in the 1st Quarter 2000, the light industry raised its output by 44.5%, polygraphic sector- by 27.5%, glass and porcelain industry- by 18.7%, and the food- processing industry- by 16.6%. With the investment demand growing, in the Ist Quarter the produce of the machine- building and metal- processing sectors grew by 14.5%, and the industry of construction materials showed a 12.0% growth in output.

At the same time, the monthly dynamics of industrial output, seasonality exclusive, has witnessed some slowdown of the growth rate since October 1999. Thus, in particular, the process of import substitution have slowed down, which is proved by the renewal of the trend towards growth in import supplies. By many kinds of produce the possibility of a further growth without attracting substantial investments are constrained. The obsolete stock of machinery and production technologies, low labor productivity level, plus an insufficiently developed competition environment in the domestic market present substantial constraints to expansion of the aggregate offer.

Table 1

Main indices of the account of capital transactions, as % of GDP

1997

1998

1999*

Gross Domestic Product

100,0

100,0

100,0

Resources

21,4

17,2

25,0

Gross savings

21,6

17,3

25,2

Capital transfers ( net)

-0,2

-0,1

-0,2

Consumption

21,4

17,2

25,0

Gross accumulation

22,8

15,4

15,5

gross accumulation of capital assets

19,3

17,5

14,8

change in the stock of material liquid assets

3,,6

-2,1

0,7

Net credits (+), net borrowing (-)

-1,3

1,5

9,5

*Preliminary data

Source: Goskomstat of RF

Given that since 1999 the growth in GDP had taken place thanks to the intensive development of import- substitution and the growth in net export against the background of a visible contraction in the domestic demand, since the IV the Quarter 1999 and through the Ist Quarter 2000 one has noted the growth in the share of final consumption and gross accumulation in capital assets. The total value of savings in the economy as a whole grew substantially in 1999 and reached 25.2% of GDP. The growth in the gross savings in the economy in 1999 allowed paying off to foreign creditors even under the conditions of the substantially contracted external financing. To estimate the economy’s prospects for 2000 it is in principle important that the growth in gross savings allowed the activation of the investment demand in the domestic market.

O. Izryadnova

IET Monthly Trend Survey: April 2000

The results of the April survey on 1,000 largest industrial enterprises appear contradictory. On the one hand, the growth rate of effective demand accelerated against the continuous fall in barter. On the other hand, the rate of output clearly slowed down, and the lack of finished produce in stock fell once again. Perhaps, the period of a relatively rapid industrial growth is coming to an end....

In April, effective demand for industrial produce was growing with a maximal intensity, and one has never registered such an excess of reports on the growth in sales over the reports on their decline. The most rapid growth in the index was reported by the chemicals, petrochemicals, electric power, and ferrous metallurgy, while an absolute decline in monetary sales was noted in the light industry, forestry and wood- working sector.

In April, the intensity of the decline in barter grew once again. Only 6% of enterprises reported a growth in such transactions, while the reports on the decline in those prevail in all the industry branches. It was the chemicals, petrochemicals, and non- ferrous metallurgy in which barter transactions were cut down most intensively.

The volume of the total ( effective+ barter) demand continues its growth. In April, the balance of the respective changes grew by yet 3 points. It was only March- April 1999 during which yet more intensive growth in the total volume of sales was registered.

The decline in the volume of finished produce in stock slightly slowed down and became the most moderate one over the last year and a half. An absolute growth in the stock was registered by our surveys only in the first half 1996. In July 1998, the growth in the stock did not happen, but the decline intensity was minimal ( -1%). Meanwhile, the growth in the volume is registered only at the sector level: in the fuel, wood- working, paper and pulp, food industry branches, and in forestry. The decline became most intensive in the chemicals and petrochemicals.

In April, for the second time this year, the survey registered a sharp contraction in the lack of stock. In February, the shortages fell by 8 points, now- by 11. The April balance of estimates proved to be the best over the last 18 months. Only 30% of enterprises estimated their stock as being ‘below norm. Since August 1998, this index has found itself within the range of 31-41%. The decline in the lack of reserves in stock was noted in all the sectors, except the industry of construction materials, while the ferrous metallurgy and wood- working sector reported a surplus of those.

The decline in the deficit of the stock entailed a slowdown in the growth of output in April. The record-breaking growth in output in March allowed enterprises’ completion of their warehouses for finished goods, and in the meantime the growing demand is satisfied both using the current output and from the warehouses. The necessity to increase the output urgently to meet the ongoing demand became less persistent. The absolute decline in output registered in the electric power, fuel and timber sectors is attributed to seasonality. As regards the other sectors, the growth in intensity was noted only in the industry of construction materials.

The main ( and the most widespread) obstacle to the growth in output is still the lack of liquid assets. However, in 2000 the frequency of mentioning this factor fell to 62%, while in 1999 it would be 66 to 70%. As to the other two reasons traditionally frequently mentioned by enterprises ( non- payments and low domestic demand), after the August 1998 crisis they are mentioned yet more rarely. In the meantime, 47% of enterprises report demand constraining the growth in output ( in the pre-crisis period - 61-69%), non- payments - 57% (62-69%), and the lack of staff -17-20% ( 7-8%). The competition with import produce in the domestic sales markets presents an obstacle for 3-5%, while during the pre- crisis era this view was shared by 10-15% of the Russian producers.

In April, the price rise slowed down once again and has become the most moderate since September 1998. Only 27% of enterprises reported price rise, while in 1999 the share of such reports was between 32 to 40%. The most intensive price rise continues in the ferrous metallurgy and machine building, and it is emerging in the industry of construction materials.

The forecasts of changes in output continue their decline. The balance of reports fell by 15 points over three months, while the share of the envisaged decline in output grew up to 13%. It was April 1999, when such a high value was registered last time, which may also witnesses a seasonal growth in pessimism prior to the May holidays. The forecasts deteriorated in all the sectors, except the construction industry, however, it is only the electric power sector and the light industry which envisage an absolute contraction in output.

The projections of changes in prices also decline for the third month running. A slower growth in producer prices is planned in all the sectors, while the most moderate price projections are reported by the electric power and non - ferrous metallurgy.

The forecasts in the change in effective demand dropped for the first time this year. However, the expectations of the growth in sales still prevail in the industrial sector as a whole. Within the forthcoming months, an absolute contraction is possible only in the light industry, moderate growth- in the food- processing, wood- working sectors, the most intensive growth- in the construction sector.

The forecasts in the change of barter transactions fell to almost absolute minimum value. Only 6% of enterprises plan to increase the volume of such deals in the forthcoming future, and those are mostly concentrated in the chemicals, petrochemicals, and machine building.

S. Tsoukhlo

Oil and gas sector

The oil and gas sector maintains its positive dynamics of development. In the first Quarter 2000, the oil output grew by 4.3% relative to its respective period of the prior year, while primary oil refining grew by 5.4%, petrol- 6.3, diesel fuel- 8%, and black oil- 3.1%. At the same time fairly favorable ( for the Russian industrial sector) conditions in the foreign trade market are still in place.

Upon the decline in international oil prices from USD 28- 30/barrel in early March to 20-22/barrel in mid- April, the prices rose up to USD 23- 24/barrel in the second half of April. The further dynamics of international oil prices will be determined primarily by the level of oil production of the OPEC countries. having compensated for the losses they bore during the 1998 price crisis, the OPEC countries have made a transition from the policy of restricted oil output towards its moderate increase ( the growth in oil output by OPEC countries actually had started yet in early- 2000). Considering the decisions made at the March ( 2000) session of OPEC, according to the US Energy Department, in 2000 the OPEC members will rise their output by a. 3.8% vs. last year, and by 4.9%- in 2001. Hence, during 2000 as a whole, the average daily output of OPEC countries should be a. 1.1 mln. higher than the average level registered in 1999, and in 2001 the OPEC countries are envisaged to raise their production by yet 1.5 mln. barrel a day.

One should also expect a growth in oil output beyond the OPEC, for the higher world prices would encourage production expansion ( in 1999 the oil output fell in the countries- non- members of OPEC -that was attributed to the production and investment reduction in some regions, because of extremely low international prices that had emerged between 1998 through early- 19999). It is projected that in 2000 the oil output of non- members of OPEC would grow by 0.9 mln. barrel a day, in 2001- by 1.0 mln. barrel. According to the US Energy Department, the world oil output as a whole, which fell by 1.8% in 1999 compared with the prior year, should grow by a. 2.6% in 2000 and by 3.4% - in 2001.

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