RUSSIA’S MANUFACTURING BOOM: THE BEGINNING OF THE END?

According to official industrial output data, Russia’s manufacturing sector has been the unlikely hero of its economic recovery. Since April 1999 Russia has been recording year-on-year growth in industrial output, thanks largely to the weak ruble, which has priced imported manufactured goods out of the market. This growth, which was reported at 8.1 percent during 1999, was the key cause of last year’s reported 3.2 percent increase in GDP. Because fuels and electricity–the nonmanufacturing branches of Russian industry–reported virtually no output growth in 1999, manufacturing was the driving force behind Russia’s turnaround. Spending by Russia’s impoverished households certainly didn’t play a locomotive role: According to the official statistics, personal consumption dropped 5 percent last year, while retail sales were down 8 percent (Goskomstat, Sotsialno-Ekonomicheskoye Polozhenie Rossii, March 2000)

Because many Russian manufacturing companies are Soviet-era white elephants which experienced asset stripping and decapitalization during the 1990s, last year’s turnaround was somewhat surprising. This surprise was particularly pleasant in such branches as light industry, animal feeds, chemicals and glass products, all of which reported output growth of 20 percent or more. Output growth in the metallurgical, wood and paper, construction materials, and machine building branches was 14 percent or above.

But, like other pleasant surprises, Russia’s manufacturing recovery may be too good to last. The most recent official data, released by Goskomstat in mid-June, paint a less sanguine picture of current trends (Reuters, June 13). According to these figures, seasonally adjusted year-on-year industrial growth in May had dropped to 7.2 percent. Seasonal adjustments account for different numbers of working days, in order to make the periods under examination more comparable. This is below the 8.1 percent industrial growth reported for all of last year, and the trend is unmistakably downward. Seasonally adjusted industrial growth exceeded 20 percent in September 1999, and was at 16 percent for the third quarter of 1999.

CAUSES OF SLOWDOWN: ENERGY SHORTFALLS, STRENGTHENING RUBLE AND BASE EFFECTS.