Industrial growth in Russia will decrease

Author: Vestnik Kavkaza

Summing up the economic year, scientific experts from the Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP) predicted
a 50% decrease in the rate of growth of Russian industry in 2012 compared to the pre-crisis level.

Head of the real sector direction of TsMAKP, Vladimir Salnikov, described the situation in the industry as showing a poor recovery. In his view, one can speak about some restoration only in the spheres  of the dynamics of output and investment. At the same time, profitability and solvency of the companies  is far behind the pre-crisis levels. At the same time the situation is different in different sectors. Even when we compare manufacturing industry to industry in general, we will see that the situation there is  worse than in the industry as a whole. The general situation in industry is pushed up by the energy and
commodities sector. The only positive trend is the productivity if labor which has grown substantially over the period of crisis.

According to the experts, by the end of the year industrial growth had slowed significantly. At the moment the growth is maintained at the rate of 0.2-0.3% a month. If we consider the dynamics of individual industries, there is a serious differentiation. Formally, the growth rates were recorded in all sectors for 2011. A significant excess of pre-crisis levels can be noticed  in some sectors of light industry - the manufacture of rubber and plastic products, chemicals, oil sector and food industry. In all other segments Russian production, at best, reached the pre-crisis indicators, while the  investment sector still lags far behind the pre-crisis levels.

"The situation with the export can be described as a complete failure when compared with the pre-crisis level,"  says Salnikov. It is important to note that at current prices 2011 saw an increase in exports because the commodity prices grew. But if one looks at the real situation, it is evident that in most sectors  there was no growth. As for imports, the main segments have restored the pre-crisis levels. The only segment unable to reach the pre-crisis level is the
import of consumer goods (due to increase of protectionist policies and raising taxes on cars).

The situation with the income is ambivalent. The main decrease in profitability occurred in the commodity sectors, where it  had been excessively high before the crisis. Thus, the chemical industry and metallurgy suffered first, but at the same time their profitability remained significantly higher than in the other sectors, especially those working for the domestic market. The debt burden has increased dramatically.

Another important point  concerns the investment in fixed assets. In most manufacturing sectors there is a deep decline in investment (between 15% and 40%), but the situation is slightly improved by the infrastructure and raw materials industries. With regard to productivity, the situation is unusually similar for all branches - the increase of some level is observed everywhere. The real effective exchange rate this year was much stronger than before the crisis, and this, according to Salnikov, restrained the possible expansion of the dynamics of industrial production. The situation remains unstable, as the course is sometimes strengthened, sometimes weakened, but nevertheless it cannot be a factor in the increase in production.

Vladimir Salnikov predicts that in general the economy and the industry can expect no less than 50% slowdown compared to the pre-crisis level. Moreover, he stressed that this is a positive view, that is the one based on the calm situation on world markets, although it is impossible to entirely rely on it. As for the acceleration of growth factors, the situation, according to experts, is uncertain. "On the one hand, there is certain room for growth. As you know our
markets unlike the developed countries are far from saturation. But on the other hand, we can now grow only through increased efficiency in the real economy and public administration and improve the quality of human capital," Salnikov said.

Oil and gas production in Russia will remain an important element of the Russian economy, although it will hardly affect the growth rate. Today we can hardly expect a substantial increase in oil production. In addition, because of the growth of the domestic market , export opportunities are likely to be reduced. As a result, oil will cease to be a growth factor. In the late 1990s - early 2000s, oil exports grew strongly, rising oil prices and stimulating the growth of the domestic market. Now the oil only supports the Russian economy, but does not determine its growth.

Ministry of Economic Development plans to begin exports of engineering products. Vladimir Salnikov, believes that "at the moment Russia is far away from it and the prospects for increased exports of mechanical engineering, unfortunately, remain murky." This means that if the plans of the Ministry will not find real expression, the ruble will become weaker than the government expects. However, the expert does not see anything wrong in the weakening of ruble believing that it will help Russian producers to compete with imported goods and on foreign markets.

With regard to nuclear energy, Salnikov believes it necessary to develop new technology related to the closed fuel cycle and with the involvement of low-enriched uranium. This would solve the problem of energy supply for centuries to come. Russia has serious problems in this area, and the expert is surprised that so little work is being conducted in this very promising field.