If in 2000 the rise in investment demandwas based upon the increase in revenues of export-oriented industry’s sector, in the current year theinvestment revival is fostered by investment and consumption industries andnon-manufacturing businesses. Whereas the revenues of fuel industries fell by17.5% as compared to January-November 2000, and in metallurgy the decrease wastwice as much, in the engineering industry the revenues grew by 19.3%, in theconstruction materials industry they rose by 37.2%, and in the constructionindustry by 27.5%. The peculiar feature of investment demand consists in itsstructural shift to engineering industry products, which supportedmanufacturing equipment production simultaneous with the increase in demand forconstruction services.
There is no doubt that the tendency to theslowing down of the inflation proved to be a positive factor facilitatingbusiness activity.
Output growth and a rise in revenues haveprovided the improvement in manufacture accounts structure, as well as theincrease in tax revenues received by the budget system. The share of clearproduction tax and import tax in GDP grew by 1.5% as compared to1998.
Subject to the exceeding output growthrates in the construction and market infrastructure industries, the share ofindustry in total revenues of all economic sectors fell to 43.6% against 60.4%in 2000. The major point of structural changes in industry gross revenues in1999-2000 consists in the increase in the latter within fuel industries and rawmaterials industries. By estimates, the producing industries share and primaryprocessing share in industry revenues rose by almost 35.0%.
Change in the structure of balancefinancial results across sectors of the economy and the industrial sectorbetween 1999 to 2001, as % to the prior year
The sufficiently high level of outputprofitability in export-oriented producing industries and raw materials primaryprocessing manufactures is determined by the state of the world market. Underthe current correlation between domestic and world prices, a considerable partof the revenues received due to the increase in ruble prices for the product,which was sold for foreign currency, turns into income. Last year, owing to thechange in prices in the world market, the fuel industry share in total currencyrevenues transferred to companies’ running accounts dropped to 17.1% against 21.8% in 2000, however,the share of ferrous metallurgy grew up to 18.9% against 6.0%. If in 2000 thetwo industries shared 27.8% of total currency revenues transferred to runningaccounts, in 2001, their share accounted for 36.0%. The tendency to theexceeding increase in intermediate goods prices, if compared to final goodsgrowth rates, was developing in the same direction in the domestic market.
GDP formation structure relative to revenuesource, in % to total
GDP – total,including:
Labor compensation, including hidden one
Net taxes on productionand import
Gross profit of the economy andgross mixed revenues
Source: Goskomstat, the RF Ministry ofEconomic Development and Trade
Subject to the current profitability, fueland metallurgy industries have an opportunity to facilitate intensiveinvestment activity by employing their own funds and exploiting internal andexternal credit resources.
For processing industries oriented to thehome market the situation is less favorable. Whereas the material costs levelis high and the profitability is low, the industries are being affected by thedeficit in own working capital, which has its impact upon the level ofmanufactures’ payingcapacity and investment activity.
The comparison of structure and dynamics ofoutput rates, investments, and labor displays overall reallocation of resourceswithin a limited number of capital-intensive producing and raw materialsprimary processing industries.
It should be noted that in 2000-2001 therewas a slight increase in employment within oil producing and oil refiningindustries, as well as in ferrous and non-ferrous metallurgy. At that, theproduction was growing against the background of augmented differentiationbetween remuneration of labor in producing and processing sectors ofindustry. It resulted in the decline in the remuneration of laborin processing industries and non-manufacturing businesses. Taking into accountthat processing industries and non-manufacturing businesses employ almost 90%of economically active population and employees’ wages equal 80% of the totalincome of the population, low paying capacity of the given categories ofcitizens appears to be an essential factor constraining economic growthrates.
In 1999, the revenues in major economicindustries increased almost threefold on the rise of ruble devaluation, whilenominal payroll grew by 1.4 times. In 1999, the share of gross income ofeconomy in GDP rose up to 43.1% against 37.7% in 1998, while the share ofremuneration of wage earners dropped relatively down to 40.9% against 47.2%. In2000, income growth rates exceeded wage growth rates by 1.2 times. Under thepolicy of restrained population income growth and the development ofconsumption prices as compared to producers’ prices in industry andconstruction, the share of wage earners’ remuneration in GDP remained atapproximately the same level in 2000 relative to the previous year. In 2001,subject to pursuing active social policy, the wage growth rates exceeded incomegrowth rates by 1.3 times. In 2001, the tendency to the increase inremuneration of labor clearly revealed itself within the GDP structure.
The changes in the labor-market situationand growing confidence of the population in new employment opportunities had apositive impact upon social and physiological atmosphere in 2001. During 2001,the number of the unemployed as estimated by ILO decreased by 0,6mln people andaccounted for 6,4mln people at the end of the year. The number of vacanciessubmitted by manufacturers to the employment agencies accounted for 887,000people at the end of 2001 against 751,000 people in December of the previousyear. The burden imposed by the unemployed population on one vacancy wasrelieved.
GDP: factors andtendencies
Actual growth rates of real economy sectorconsiderably exceeded the level of planned variables, which had formed thebasis of the budget for 2001. The exceeding growth in domestic demand inrelation to external demand appears to be one of the main features of theeconomy development in the current year. The share of domestic demand in theGDP structure rose up to 86.7% in 2001 against 79.6 % in the previousyear.
The increase in domesticbusinesses’ activityallowed for assumption that the GDP growth in 2001 would be within the range of103-104% other things being equal. However, in spite of the relatively lessfavorable state of the world market in respect of raw and fuel energyresources, if compared to 2000, the dynamic development of domestic demandserved as additional incentive to domestic economy growth. The comparativeanalysis of the changes in the GDP structure and dynamics in the period ofreforms shows that, if the external demand growth revealed itself as a factorcompensating for the shrinkage of the domestic market in 1992-1996, in thefollowing years the situation changed.
Change in dynamics of GDP, domestic andexternal demand in the national economy in 1992-2001, in comparable prices, as% to the respective period
Source:IET calculations basing on thedata of Goskomstat and the RF Ministry of Economic Development and Trade
The distinctive feature of Russian economygrowth in 1999-2001 consisted in the simultaneous increase in both domestic andexternal demand. In the course of open market economy development, theinfluence exerted by external factors keeps growing. On the one hand, almosttwofold decline in import, if compared to the pre-crisis period, provided spacefor intensive expansion of domestic production and rise in the income of goodsmanufacturers and services producers. On the other hand, export revenues had astrong impact upon the changes in the dynamics and structure of final demand inthe economy.
The change in the dynamics of GDPperformance, by constituents, in % relative to the previous year
Spending onfinal consumption by:
Source: the RF Ministry of EconomicDevelopment and Trade, the RF Customs Statistics of Foreign Trade
When analyzing the sustainable state of theRussian economy, it should be emphasized that the correlation between externalfactors, which determined the output growth in 2000 and 2001, was different. Ifin 2000 the increase in prices for energy carriers and non-ferrous metals inthe world market was the major factor of output growth, in 2001, there was agradual decline in external factors’ effect. Since 2000 the exceedinggrowth rates of physical import volumes have been fixed again, if compared tothe export dynamics and GDP performance. At that, the decline in growth ratesof physical export volumes by the end of 2000 could be explained by the stateof the world market of raw materials, as well as the intensive import growthover 2001 was connected with purely domestic problems.
The analysis of trading sector developmentallows us to state that it has failed to make new goods niches for domesticoutput both in the world and home markets. The increase in domestic demand in2000-2001 fostered by export-oriented industries was based upon inertial outputgrowth within a rather narrow sector of national economy.
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