The Russian Industry: Old Problems in the New Year

Over a year ago, the Russian industry entered the stage of subsiding growth. Comparison of the dynamics of output and prices on industrial produce permits to evaluate the current efficiency of industrial growth stimulation measures.


According to the results of January-November 2013, the Russian industrial output is 4.3% higher than the pre-crisis level, while producer prices are 43% higher.

Fig. 1.

Growth in output and industrial producer prices in the past five years, %

Development of industrial production takes place in a situation of advanced growth in tariffs. So, with the output volumes in production and distribution of power, gas and hot water comparable with those in January-November 2008 prices on that produce rose by more than 60%.


Moderate and sustained growth in production of primary products (6.8% against the pre-crisis period) took place in conditions of substantial improvement of the global market situation as regards prices on energy carriers; as a result producer prices increased by 77%.


It is to be noted that in manufacturing industries growth in output and prices on industrial products is much lower. Within five years, including the period of the dramatic phase of the crisis, adjustment growth and subsiding growth, manufacturing industries' output increased by 3.1%, while producer prices, by 30%.


Within five years, the best dynamics of output (a 16.1% growth) and moderate growth in prices (31%) were demonstrated by industries participating in processing of hydrocarbons (chemical industry and production of charred coal, oil products and rubber and plastic articles). Comparable growth in output and prices was observed in production of transport means and equipment.


Smaller growth (8.1%) was registered in production of consumer demand products; it is to be noted that stimulation of the consumer demand by means of both state programs and the banking system contributed to a great extent to active growth in producer prices (nearly 45% within five years).


The situation is more complicated in production of investment demand products (in production of machines and equipment, power equipment and other non-metal mineral products). Unstable and subsiding investment activities of Russian enterprises and lower investment demand determine simultaneous output gap and low growth in prices on that industrial produce. Output of investment demand products is 14.4% lower than the pre-crisis level, while prices within five years increased by less than 25% which situation points to a dramatic worsening of both production and financial indices.


Finally, crisis is far from being over in the forest industry, wood-working and pulp and paper complex (wood-working and production of wood products, pulp and paper production, publishing and printing). The output of the above industries is 9% below the pre-crisis level, so, the former growth model aimed at the export of unfinished wood has not been replaced so far by a new one aimed at reprocessing in Russia.


So, stimulation of consumer demand still has an effect on growth in prices on industrial produce. In conditions of the existing business climate, it is becoming more and more difficult to balance the measures of promotion of industrial growth with those of keeping the inflation rate at the low level. Overcoming of the investment pause and at least revival of investment activities will result at the initial stage in rapid growth in prices with an insignificant increase in output of equipment and building materials. An onward growth trend of the above industries will be preceded by initial improvement of their financial situation, as well as modernization of production. A search for a quality new model of growth in forest industry, woodworking and pulp and paper industry is complicated due to an apparent shortage of resources for establishment of new production lines or modernization of the existing ones. In conditions of slow exit of the global economy from the crisis and the base objective to keep the rate of inflation at the low level, a set of measures to stimulate economic growth in Russia is rather limited. It is important to raise efficiency of those measures and strengthen effective response of the economy to expansion of the demand, that is, improve considerably the business environment and direct it towards higher market competition and greater investment attractiveness of the economy. Institutional measures and restructuring of the economy are becoming the main lines (if not the only ones) of stimulation of economic growth.


О.B. Berezinskaya, Leading Expert of the Structural Research Center