One of the reasons for low competitivenessof domestic products is that economic growth used to be oriented mostly to theincrease in the utilization and employment of spare production capacities forproduction purposes. The fact that no sufficient changes resulted from theemployment of new production capacities didn’t allow for successiveimplementation of import substitution policy and diversification of exportflow. Since the beginning of 2000, the enhancing tendency towards increase inimport share has been observed within the structure of goods stock in theconsumer market and the materials and machinery market. As a result, byestimates of the RF Minestry of Economic Development, clear export accountedfor 89.1% in 2001 relative to the level of the previous year. For the Russianeconomy it is an alarming signal since, as a rule, the decline in clear exportresults in the decrease in economy growth rates.
Change in dynamics and physical volume ofexport, import and doemstic demand in 1998-2001, as % to the respective periodof the prior year
Domestic demand: finalconsumption
The growth in economy income exerted aconsiderable influence upon the proportions of finalconsumption in GDP. In 2000-2001, among all the elements of final GDP usage theaccumulation of stock capital was growing at the highest rates. Subject to theincrease in business activity, the investment demand growth provided almost¼ of total physical GDP volume growth. But in reallocation of GDPresources in favor of the investment constituent the tendency towards thedecrease in the expenditure share in final consumption of material comforts andservices keeps growing.
The structure of GDP usage in 1998-2001,quarterly, % to totals
Spending on final consumption by
Gross accumulation of capital assets
Source: preliminary data of the RF Ministryof Economic Development and Trade, Goskomstat
In 1999, the production was expandingagainst the background of low consumption demand resulted from a dramatic fallin population’sspending due to ruble devaluation. Real income of the population in 1999accounted for 72.2% relative to the pre-crisis level of 1997. The current levelof solvent demand in the consumption market limited the possibilities offurther increase in goods and services production. As a result, the total finalconsumption spending dropped by 3.5% during the year. In the given situationthe successive implementation of governmental policy aimed at the increase inwage and pensions had a positive impact upon the character of economicdevelopment. Since IV Quarter 1999 the dynamics of final consumption spendingof households is characterized by sustainable tendency towards growing. Theshift in priorities of economic policy towards increase in domestic demand wasinitiated by the changes in the state of the world market.
The increase in economy income gained fromthe export exerted a considerable influence upon the character and proportionsof production and final consumption. The growth potential created by means ofintensive investment activities, as well as business revenue growth allowed forsolving accumulated social problems.
Change in dynamics of consumption of GDPacross components of GDP between 1996- 2001 in comparable prices, as % to therespective period of the prior year
In 2001, with regard to a regular tendencytowards an increase in wage and pensions, real income of the population grew by5.9%. The share of final consumption spending increased by 3.7%, which wasfully motivated by a dramatic rise in total for household spending. Almost3/5th of the 2001 GDP growth ratios are accounted for by the increasedconsumption spending. The analysis of the Russian economy dynamics as observedthroughout the last decade proves remarkably that household consumptionspending attained the pre-reform 1991 level under the situation. The share ofthose raising a lower income that the average for the living wage decreased by15.0% as compared to III Quarter, 2000. Taking into account thegrowing income in IV Quarter including the risen public employee payroll eversince December 1, 2001, poverty leveled 24.2% of total population as opposed to26.9% in 2000.
The dynamic retail turnover growth and theincrease in domestic consumer goods output serve as the best evidence ofpositive changes in living standards of the population. In 2001, finalconsumption spending growth in households is estimated at the level of 8.1%. Ifcompared to 2000, retail turnover grew by 10.8%. Along with population incomerise, the non-foods consumption is rapidly increasing. Retail turnover forfoodstuffs rose by 7.4% in 2001 as compared to the relative period of theprevious year, and the non-foods turnover grew by 13.7%. While consumptionperformance is being gradually restored, trade businesses turnover isexceedingly increasing as compared to the retail turnover in food and non-foodmarkets. Intensive consumer demand growth had a positive impact upon thedynamics of retail profitability and investment within the given sector ofeconomy.
The favorable state of the domestic marketfostered the motivation for production growth and expansion. The 1999 to 2001economy revenue growth provided meeting such liabilities as are necessary fortimely financing budget expenditures and managing the national debt resortingto no unbudgeted loans in either the domestic or foreign assets markets. Theincreased investment in stock capital still retains a dominant impact uponproduction performance. The GDP gross savings share steadily exceeds the levelof 2000.
Despite the investment positive dynamics,it still proves insufficient to pursue an active industrial policy, with regardto the technology, reproduction and age structure of stock capital formed.Taking into account the high income concentration common for export-orientedsector and the absence of any mechanisms for inter-sectoral capital flow, it ishardly reasonable to expect any radical changes in structure of stock capitalreproduction. The situation within investments sector is affected by the factthat economy needs not only the augmentation of investments but also guidelinesfor investments strategy aimed at the industries, which traditionally lackcompetitive production capacities. Industries with production capacitiesdeficit, such as oil refining industry, chemical industry, ferrous andnon-ferrous industries, engineering, food and light industries, appear to bemost vulnerable. The dearth of a developed mechanism of capital flow andturning savings into investments proves to be a factor constraining economicgrowth rates.
The shares of gross avings, grossaccumulation and investment in capital assets in GDP between 1998 to 2001, as %to result
Domestic demand forinvestments
The distinctive feature of 2001 consists inthe exceeding investments growth if compared to GDP performance. thesustainable positive production performance and the increase in external anddomestic demand have changed the situation in investment sector. Subject toprofitability growth, businesses started up a more intensive allocation ofmoneys for implementation of investment projects. The investment performance isa striking evidence of contradictive totals for 2000-2001.
The investments growth in 2000-2001resulted mostly from favorable external conditions for Russian exporters.Consequently, the share of fuel-energy industries and transport in thestructure of the investment spending on stock capital reproduction is rising.The investments demand growth revealed that domestic engineering industry isquite incapable of filling in the market with material and technical facilitiesof high quality. A considerable reason for limited industrial growth consistsin the dearth of modern equipment. The rise in competitive import of machinesand equipment has become characteristic of 2001, while the tendencyto purchasing second-hand technical facilities has been clearly outlined.
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