…GROWTH CONTINUES IN THIRD QUARTER.

The numbers on economic performance from the State Statistical Committee Goskomstat indicate that Russia’s economic growth accelerated in the third quarter of 2001 despite weaker growth in exports (Goskomstat, October 22). In the third quarter, output of basic goods and services increased 6.4 percent, compared with 4.9 percent growth in the first quarter and 5.7 percent in the second. While no data have yet been provided on developments in GDP through the third quarter of 2001, Goskomstat publishes the index of output of basic goods and services monthly. It is a composite of gross activity indicators for five sectors of the Russian economy: industry, agriculture, construction, transport and trade. Trends in this indicator often do correspond to developments in GDP. For the first nine months of 2001, the index of output of basic sectors increased 5.7 percent year-on-year. Industrial output growth has slowed, but some of the other basic sectors have actually experienced more rapid growth this year. Industrial output increased by 5.9 percent year-on-year in both the first and second quarters of 2001. For the first nine months of the year, however, the increase in industrial output was only 5.2 percent (5.4 percent corrected for work hours) compared with an 11.8 percent increase in full-year 2000. The slower growth in industry reflects the slackening of exports due to the impact of the weakening global economy and the loss of Russian competitiveness as the ruble has strengthened further in real effective terms. Russian producers also face stiffer competition in a number of domestic industrial branches that compete against imports since the stronger ruble has made imports more affordable. However, in light of the apparent signals of a dramatic slowdown in the fourth quarter of last year and the first few months of 2001, economic growth in Russia this year is considerably stronger than most analysts expected. With export growth down to a trickle in 2001, domestic demand has surged to keep the economy buoyant.

Growth in household consumption has remained strong in the third quarter, signaling that the trends of the first half will continue. Developments in retail trade turnover in real terms are typically a good proxy for household consumption. In the third quarter of 2001, real retail trade turnover rose 11.3 percent, slightly behind the 11.6 percent pace in the second quarter of this year but well ahead of the 7.3 percent in the first quarter. Very substantial increases in real wages year-on-year have fueled the boom in consumer demand. Real wages were up 24.4 percent in September 2001 relative to a year earlier, and 19.9 percent higher on average in the first nine months of the year compared with the same period of 2000.

Judging from data on gross expenditures on fixed capital available through September, investment activity also continued to rise in the third quarter. While gross expenditures on fixed capital rose only 4.2 percent in the first half of the year, they were up 7.8 percent in the first three-quarters of 2001. This has also been reflected in the trends in construction activity this year. The volume of contract construction work performed in the third quarter rose 10.6 percent year-on-year; for the first three-quarters, construction activity rose 8.2 percent. Given those developments, while GDP growth this year is not going to match the spectacular 8.3 percent achieved in 2000, it will nevertheless be enviable.

WHAT KIND OF STABILITY IN GEORGIA?