Eastern European Markets

(December 30th 2010)

Saint Petersburg in the first half of 2010: Biannual Economic review
University of Eastern Finland – Karelian Science Centre, CEMAT 2010

Economic development: hesitant growth

The post-crisis economic recovery that began in St. Petersburg in the second half of 2009 continued in the first six months of 2010. High oil prices propelled exports and boosted city revenues, but growth was substantially slower than in the pre-crisis years, and investment
demand weakened (partly because of a significant net outflow of foreign investment). This suggests that investors expect high uncertainty and that the existing recovery may be fragile.

Output by major sectors, %-change y-o-t

St. Petersburg’s Gross Regional Product (GRP) grew by 4% in the first half of 2010 according to St. Petersburg’s city government. Given that the lowest point of the recession came in the first half of 2009, this year’s growth figure was boosted by a low base effect, and the economy is still recovering ground lost during the recession. The city’s government has also forecasted that GRP for the whole year will grow 4.4% and reach 1650 billion RUR.

St. Petersbur´s GRP

Total sales of St. Petersburg’s companies were 2,015 billion RUR in the first six months of the year and increased by 18.6% in current prices.

Industry: car manufacturing became the main
force behind industrial growth

Industrial production in St. Petersburg grew 8.3% in the first half of 2010 (y-o-y), which was slightly below the 10.2% growth rate in Russia. This growth was mainly driven by the expansion of manufacturing production, which increased by 10.1% (in Russia it increased by 14.3%). Output in the electricity, gas and water sector was flat (it increased by only 0.8%) however, unlike other industrial sectors, this sector experienced significant growth in 2009. Additionally it was excluded from the widely felt low base effect.

The most rapid growth was in the production of transport vehicles – after plummeting by 60% in 2009 it jumped 2.4 times in the first half of 2010 (i.e. almost returned to its 2008 level).

Currently, three leading international automotive companies have opened car production plants in St. Petersburg - Toyota, Nissan and General Motors. In the first six months of production they manufactured 24,900 cars (of seven different models), or 3.5 times more cars than in the same period a year ago. Interestingly however, the total Russian car market increased by only 3% in the same period (according to PwC).

This is because the rapid growth in St. Petersburg’s car production owes much more to federal policies shifting consumer demand from imported cars to cars produced/assembled in Russia (including foreign brand cars), than to the general increase in consumer demand. These policies included an increase in import tariffs on foreign cars, interest subsidies for car loans, and discounts for purchasing a new car if a buyer’s old one is retired. Other Russian automotive manufacturers also increased production but much less than the St. Petersburg’s plants – ASM Holding reported that the total car production in Russia grew by 61% from January-May of 2010.

In autumn 2010, the Korean company Hyundai shouldvopen another automotive plant with a capacity of 150,000 cars a year p.a. Demand for cars in Russia has been growing very rapidly in recent months (for many popular models there are long waiting lists, sometimes for several
months). This growth, together with the substantial expansion of production capacity in the city, should ensure a rapid expansion of the automotive sector in the near future.

Strong growth was also reported in the production of metals and fabricated metal products (+42.7%), mainly of steel products and pipes, and in the chemical industry (+21.2%), with the main increases in production of laundry detergents and pharmaceutical products.


Economic Monitoring of North-West Russia (http://www.hse.fi/ecomon)
The project “Economic Monitoring of Northwest Russia” was launched in 2000 with the aim to provide regular, comprehensive and systematic reporting on the socio-economic development in the region. The monitoring covers today six Northwest Russian regions: The City of St Petersburg, Leningrad, Kaliningrad, Murmansk and Novgorod provinces, and the Republic of Karelia.

More Information
Professor Riitta Kosonen
Director, Center for Markets in Transition (CEMAT)

Compiler Trade Web Site: Tutkimuksia
Studies on emerging markets /Index