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Grossdomestic product




Labor paymentfor employees (accrued)




Labor payment for employees (paid)




Taxes onproduction and import (accrued)




Taxes onproduction and import (inflows to Budget)








Gross profit(gross mixed income)




Consumption of fixed capital




Net mixed income





Profit by national economy




Source: Russian Ministry foreconomy

The share of the labor payment of thesalaried employees (accrued) reduced from 39.9% in 1994 to 33% in 1995 grew, in1996, up to 37.2%, according to the estimates. This if explained, first, bythat the further decrease of the production volume at the enterprises of thereal sector is not accompanied, as before, by the adequate staff reduction.Besides, in 1996, in contrast with the preceding year, the growth of theaccrued average monthly labor payment in the economy sectors outstrippedconsiderably the growth of the consumer prices.

Fig. 2.1

Thus, if, in October 1996, the consumerprices index was 127.2% relative of October 1995, the growth rate of theaccrued wages and welfare benefits per employee for the same period was 135.5%for the economy in whole, with the existing differentiation for certainbranches and sectors.

The relation between the dynamics of theaccrued wages and inflation at deterioration of the financial situations ofenterprises brought to the accelerated accrual of the wages arrears. In Januaryto October 1996, the paid wages in industry were only 72% of the accrued ones.As a result, the accrual of the wages arrears exceeded more than two-fold theone for the preceding year.

Thus, the real reduction of the labor paymentshare (actually received) in the GDP is greater: from 39% in 1994 to 35.6% in1996.

The share of the taxes on production andimport in the GDP (accrued) grew, during 1994-96 from 13.5% to 15.8%, whichshows a certain growth of the indirect taxation on the producers. Due to theannual reevaluation of the fixed assets, the taxes on property grew: the shareof these taxes in the GDP grew during the two years by 1p.p. During the sameperiod, the share of the excise taxes grew by 1.6p.p.

In 1996, the gross mixed income of theeconomy was 51.5% of the GDP, just as in 1994; but its components moved indifferent directions. The share of consumption of the fixed capital grew from20.2% in 1994 to 24.6% in 1996, due to the reassessment of the fixedassets.

For the first time from the beginning of thereforms, the nominal aggregate mass of profit in industry, transport, andconstruction began reducing (in January-November 1996, it was 45% compared withthe same period of the preceding year). This was conditioned by the continuingproduction recession, reduction of the inflation share of profit, growth of thedepreciation share due to the reassessment of the fixed assets from1January1996, and the asynchronous dynamics of prices of the final andintermediate products. In 1996, the profit exceeded the level of the precedingyear in the gas transport and power at a visible reduction of profit in all theother branches.

The specific weight of the profits of thebranches of economy reduced from 17.7% of the GDP in 1994 to 15.7% of the GDPin 1996, reflects the deterioration of the enterprises’ financial situations due to thesharp reduction of the profitability. In the first half of 1996, theprofitability of commercial products in industry was 10.2% against 26.2% forthe same period of the preceding year; in whole during the year, theprofitability decreased from 19.7% to 13.8%.

The higher share of profit in the GDP in 1995(18.4%) compared with 1996 accounts for the fact that, under the conditions ofthe favorable foreign economic conjuncture, the group of industriesmanufacturing the intermediate products (metallurgical, chemical andpetrochemical, and cellulose-paper industries), in the first half of 1996,increased the prices on their products much faster than the prices of theirinput material resources grew. The profitability in these industries grewbluntly: op to 30% to 40%. This could go on only till the prices in Russiareached the world level; this happened, in most cases, to the end of1995.

The comparison of the prime cost andcommercial product volume growth rate for the last year brings to theconclusion on the anticipating growth of the prices of the consumed materialresources compared with the end product prices in most branches. This showsthat the effective demand of the consumers has reached its limitlevel.

Table 2.4

Structure of use of GDP, %





Grossdomestic product



Expenses on end consumption









individual services



collective services



non-commercialorganizations servicing private households



Gross accumulation



grossaccumulation of fixed capital



change of stocksof material circulating assets



Net export (minus import)



*) Estimate by Russian Ministry foreconomy

Source: Russian Goscomstat

Use of gross domestic product. The main factor influencing the dynamic and structure of the useof the gross domestic product in 1996, was the further reduction of thedomestic demand. The reduction of the effective demand in the domestic marketwas initiated by the insufficiency of financial assets in all the sectors ofthe economy. The total final consumption of the material goods and services in1996 was 96% of the level of 1995.

In 1996, after the reduction, in 1995, by13%, the real disposable incomes of the population stayed on the level of thepast year; with this, the growth by 5% of the real accrued wages per employeewas observed, against the reduction by 28% in 1995.

Fig. 2.2

Fig. 2.3

In 1996, the actual end consumption of theprivate households, taking into account the cost free services, stayed at thelevel of the preceding year. The expenses of the private households on the endconsumption of goods reduced by 4%. The structure of the expenses on the goodssaw no substantial changes: the share of the food stayed at the level of 1995,i.e., 48%. The real decrease of the expenses on the final consumption of thepaid for services to the population reduced by 18% in 1995 compared with 1994to 7% in 1996 compared with 1995.

In 1996, the gross savings continued reducingboth due to the reduction of the investments in the fixed capital and to thechanges of the tangible circulating assets. The investments recession of 1996exceeded considerably that of the preceding year, and, just as in the pastyears, the rates of recession of the industry and GDP.

In 1996, the gross accumulation of the fixedcapital reduced by 185 against 11% in 1995; moreover, the reduction of thefixed capital accumulation was similar in both the productive andnon-productive spheres.

Beginning from 1993, the net accumulation ofthe fixed capital has been negative, especially in the production sphere;hence, the further reduction of the investments will lead to the lowering ofthe reproduction capacities.

The economic situation of 1996 may be definedas the new stage of the system crisis affiliated with the transformation of theproduction model in the direction of improvement of the interior balance bydismantling the non-utilized and losing capacities, as well as reduction ofemployment and inter-industries flow of the investment and laborresources.

2.2 Industry

Dynamics of industrial production

The industrial dynamics in 1996 wascharacterized by the remaining trend to the general production recession. Thetotal industrial production reduced by 5.5% compared with the previous year.The least reduction was observed for the intermediate products: 4.3%. Theproduction of the capital goods reduced by 14.5%; the production of theconsumer goods reduced by 6.6%. The data on the production dynamics in the mainbranches of industry are shown in Tables2.5 and 2.6 and at Figures2.4 and2.5.

The general causes of the industrialrecession in Russia are the structural features of the Russian economy, and,first of all, the vast inefficient sector and hypertrophied development of thearmament industry. The following main factors of the recession, having directlyconditioned the reduction of the industrial production during the reforms andactive in 1996, as well, are to be emphasized:

- the rapprochement between the levels ofthe domestic and world prices, resulting in the dismantling of the inefficientcapacities and growth of the share of the imported product to cover theeffective demand in the domestic market;

- the tightening of the financial andcrediting policy having resulted in reduction of the financial support of thenon-competitive capacities, abrupt reduction of the governmental investmentsand arms manufacture;

- the investment crisis having conditionedthe investment production drop;

- the reduction of the effective demand ofthe population which has, together with the expansion of the import,conditioned the reduction of the consumer goods manufacture; and

- drop of the effective demand for theRussian industrial products in the CIS countries, as a result of the economicrecessions in them and harmonization of the mutual trade prices with those ofthe world market.

Fig. 2.4

Fig. 2.5

Fig. 2.6

Table 2.5

Dynamics of physical industrial productionvolume in 1990-96
(% of precedingyear)








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