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Interest rates on Rb.-denominated deposits of enterprises and organizations in 2000

1. between 31 to 90 days
2. over 1 year

Source: CBR

Fig.2

Dynamics of the announced interest rates by legal entities’ Rb.-
denominated deposits in the Moscow banks

1. 3months
2. 6 months

The evaluation of the Russian statistical data show that prior to the 1998 crisis investments in the open market were more profitable than banking deposits. Thus during the pre-crisis period the investments in the federal government’s bonds ensured higher yields than the Rb.-denominated deposits 9sse Fig.3). That is not attributed to the correlation formed in 2000. The yields of the very few GKO issues placed over the year mainly were inferior to the profitability rates of deposits placed for the respective term. The comparative profitability rates of deposits and GKO in 2000 are represented in Fig.4

Fig.3

Nominal profitability rates of GKO and legal entities’ Rb.- denominated deposits between 1997 to first half 1998.

Note: Yields to maturity and interest rates are calculated with regard to the reinvesting rate, annualized

Legends:

1. interest rates on legal entities’ Rb. denominated 6-month deposits placed with the Moscow banks
2. the auction yields of GKO with the maturity between 135 to 270 days
3. the auction yields of GKO with the maturity over 270 days

Fig.4

Nominal and real profitability of Rb.-denominated banking deposits and GKO in 2000.

1. GKO yields to maturity with regard to reinvesting rate
2. GKO yields to maturity with regard to reinvesting rate and inflation
3. Nominal profitability rates of legal entities’ Rb.-denominated deposits for the term between 91 to 180 days, with regard to reinvesting rate
4. Real profitability rates of legal entities’ Rb.-denominated deposits for the term between 91 to 180 days, with regard to reinvesting rate ( with the deposit term of 3 months)

Source: calculated using the data of CBR and Finmarket

L. Mikhailov, L. Sycheva, E. Timofeev, E. Marushkina

The real sector: factors and trends

The dynamics of economic growth between January to February 2001 found itself under a continuous positive impact of the combination of factors and conditions emerged over the last two years. During the period in question the increment in the output of basic sectors made up 3/5% relative to the respective period of the prior year, including a 3.1% increment in industrial output. The economic situation was under the continuous favorable impact of the trend of advanced investment demand. The increment in investment in capital assets made up 7/6% compared with the period between January to February 2000.

With the growth in investment demand, such sectors as machine building, industry of construction materials and related industries of the metallurgical and chemical sectors experienced a renewal of positive dynamics of their development. As a result, the consequences of the traditional January seasonal decline were overcome in February 2001. The increment in industrial output, exclusive of seasonality, made up 5.7% relative to January. With the current capacities loading rate, the orders ensure the formation of production programs in the industrial and construction sectors for the forthcoming 4 months.

The economy achieving a positive dynamics of its economic growth development in February to a significant extent is attributed to the emerged growth potential in the real sector that is based on the financial recovery of enterprises and organizations.

In 2000, the overall profit by the economy as a whole made up Rb. 1,186.8 bln., thus exceeding at 1.62 times the prior year’s level. In the conditions of economic growth over the last two years, one notes an increase in the profitability rate of the output of goods and services. The proportion of unprofitable enterprises and organizations across the economy as a whole slid from 44.6% in 1999 to 41.6% in 2000. The indicators of financial performance have improved practically in all the sectors. Considering the economy on the whole, the production profitability rate in 2000 made up 17.7%, and 27.7% - in the industrial sector. With the growth in output and revenues raising, the structure of settlements between enterprises and the growth in tax revenues experienced a serious improvement. When compared with 1999, the proportion of net taxes on output and import in GDP grew by 2.7 per cent points compared with 1997.

Table

Structure of formation of gross domestic product by revenue sources, as % to result

	1995	1996	1997	1998	1999	2000
GDP – Total, including:	100,0	100,0	100,0	100,0	100,0	100,0
Salaries and wages of employees, including hidden ones	45,2	49,6	50	47,6	42,3	41,3
Net taxes on output and import	11,9	13,5	14,5	14,2	14,6	17,3
Gross profit of the economy and gross mixed revenues	42,9	36,9	35,5	38,2	43,1	41,4

Sources: Goskomstat of RF, RF Ministry for Economic Development.

With the advanced rates of output of goods compared with the dynamics of services, the proportion of the industrial sector in the overall profit of the economy grew up to 65.8% vs. 56.1% in 1998. The change in dynamics and structure of formation of revenues of industry branches and of the industrial sector was taking place under the impact of the residual effect of the Rb. depreciation and the growth in world prices for Russian exports.

It was the redistribution from the manufacturing sector to the fuel and energy complex and mining production that formed the main component of structural shifts in the formation of gross profit in the industrial sector in 2000. According to some calculations, the proportion of mining industries and primary processing production in the profit of the industrial sector grew roughly by 35.0 per cent points over last year. The substantial growth in profitability of the produce of export-oriented industries of the mining sector and enterprises dealing with primary mineral processing is determined by a favorable combination of price factors in the world market for fuel and natural resources. In addition, with the current correlation between domestic and international prices, profit also comprises a significant part of the incomes formed thanks to the growth of the Rb.-denominated value of the produce sold for foreign exchange. As concerns the overall amount of foreign exchange receipts on enterprises’ current accounts, the proportional weight of enterprises of fuel sector grew from 10.9% in 1999 up to 22.6% in 2000 and the one of enterprises of ferrous metallurgy- from 4/6% to 6.2%. The similar situation was noted in the domestic market, where there was a trend to an advanced price rise for intermediary goods compared with the price dynamics for the goods of final consumption. The redistribution of revenues in favor of consumers was also encouraged by the maintenance of relatively low tariffs for produce and services of natural monopolies, especially considering high transportation and energy components of costs in the fuel and metallurgical sectors.

As a result, the export-oriented sectors- oil, gas, ferrous and non-ferrous metallurgy experienced a substantial rise in their profitability rates, and their proportion in the aggregate profit of the economy made up 45% in 2000 vs. 26% in 1999. That has allowed a radical improvement of the sectors’ financial positions, to get rid of the deficit of their liquid assets and debt pressure. With their profitability rates growing, the fuel and metallurgical sectors have a chance to activate their investment efforts by using their own capital and attracting domestic and external credit resources.

In the industry branches within the processing sector that are oriented towards the domestic market the situation has been less favorable. With the material costs being high the price rise for intermediary goods became the factor constraining profit growth rates and the decline in profitability rate of the produce in the sector relative to 1999. The industry branches still experience shortages of their own liquid assets, which affected their enterprises’ credibility and their innovation and investment activity.

The comparison between dynamics and structure of the volume of output, the investment volume and the labor volume shows that the economy experiences redistribution of resources in favor of a limited number of capital-intensive industries of the mining sector and primary processing of minerals.

Figure

In 2000 the profit growth rate was 1.2-fold over the rise in salaries and wages. With the moderate policy of population’s incomes growth and consumer prices dynamics relative to producer prices in the industrial sector and construction, the proportion of salaries and wages of employees in GDP in 2000 roughly was at the prior year’s level.

It should be noted that it was enterprises of the oil-producing, oil-refining industries, and the ferrous and non- ferrous metallurgy that experienced the biggest increment in jobs in 2000. At the same time the growth in output was taking place against the backdrop of a growing differentiation in salaries and wages between the mining and manufacturing sectors. Thus, for instance, given that in the early 2000 the nominal salaries and wages in the fuel sector was 3.1-fold higher than in the machine building and 6.2 fold higher than in the light industry, by the end of the year the respective gaps grew up to 3.6 and 7.2 times, respectively. This leads to the decline in the factor labor compensations in the processing industries and in the services sector. Taking into account that the manufacturing sector and the services sector employ almost 90% of the economically active population, and their employees’ salaries and wages forms over 80% of the population’s monetary incomes, a low effective demand demonstrated by these categories of residents appears a serious factor inhibiting economic growth rates.

O. Izryadnova

IET monthly trend survey: March 2001

In March, the situation in the national industrial sector was developing under the impact of contradictory trends. On the one hand, the enterprises report a renewal of their effective demand and output, while, on the other, the slowdown of the fall in the volume of barter and other non-monetary sales schemes continued; for the first time since September 1998 the stock of finished produce has become excessive. The impression is that the enterprises have not yet finally believed in the renewal of the former dynamics of demand.

In March, the growth in effective demand for industrial produce recovered. The proportion of reports УUpФ once again exceeded the one of reports УdownФ. The absolute contraction in monetary sales was still in place only in the forestry, wood- working, paper and pulp, light and food- processing sectors, while other sectors reported a growth in the volume of their monetary sales compared with February.

Despite the improvement of the situation with the sales, the surveys register the ongoing presence of the past trends to changes in barter transactions and operations with promissory notes and off-sets. The decline rates of such deals continue to fall for the fourth (in the case of barter) month running. Nonetheless, none of the sectors reported an absolute growth in barter as yet. It is metallurgy and the industry of construction materials that reported the slowest contraction in this index, while the growth in the volume of promissory note and off-set schemes has already taken place, though in the machine- building sector only. All other sectors still report the prevalence of the reduction in such deals.

Upon renewal, though not to the past magnitude, of the growth in effective demand, the enterprises sharply increase their output growth rate. In March, the balance of this index rose from +11 up to +32%, which corresponds to the best values of last year. The growth in the output volume (and more intensive one than in February) was registered in all the industry branches, except electric power and light industries, with the most intensive rise noted in the sectors for chemicals, petrochemicals, and machine building.

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