tutkimuia

Eastern European Markets

(May 2011)

The Republic of Karelia in 2010. Biannual Economic Review.
University of Eastern Finland – CEMAT 2011

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Is the Murmansk province able to stay on its recovery path?

Judging by the results of 2010, the Murmansk province seemed to be overcoming the negative consequences of the world financial crisis of 2008/2009. During the 1H2011 there were some signs that this recovery might be shortlived. First of all, much of the positive news (export and company profit increases) hinged on the high global raw material prices during the first half of the year. As the price development has eased during the second half, these developments may deteriorate. Simultaneously, a drop in the industrial production index was recorded as well as in cargo volumes. Also retail sales and population income development was weak.

On the positive side, fixed investments finally came out of negative territory and foreign direct investments increased notably. It is becoming increasingly clear that with the current economic base the region will not achieve a higher development stage, and the major investments in energy, raw material and transportation sectors need to be fulfilled in order to find a new growth path. This situation has already prevailed for several years now, but a positive indication is that the investments are proceeding closer to materialization, despite the constant postponements.

However, if the global financial crisis re-emerges, this fulfillment will probably shift again by at least a couple of years.

Forecast on economic development in Murmansk province for first half of 2012

Our December forecast for growth in the first half of 2011 in the Murmansk province was -0.5% for industrial production and 5% for retail trade. Actual figures were -2.2% for industrial production and 2.3% for retail trade, so our forecast was somewhat optimistic. In May, we presented exactly the same forecast figures for all of 2011. Based on the latest data industrial production development in the region is following the forecast quite closely. In our earlier reports we acknowledged that retail sales growth was unlikely to achieve pre-crisis double digit growth figures in 2011. However, based on the latest data our estimation seems to once again have been too optimistic, as global uncertainty is affecting general economic sentiment and the easing of inflation pressures have materialized too late to considerably affect the weak development of the 1H2011. Furthermore, income development in the region was weak during the first half.

Due to high global uncertainties we decided to publish two separate forecasts for the 1H2012. The first one is a baseline scenario in which the global economy continues its recovery and Western economies manage to avoid renewal of the recession. However, if the Euro crisis is not resolved by the turn of 2011-2012, a European led global recession is a completely plausible outcome, negatively affecting the Murmansk province’s economy. This will be our crisis scenario. In the baseline scenario we expect the region’s industrial production to achieve a small positive growth of 1% for the 1H2012.

In the crisis scenario we expect the negative shock to drive the industrial growth into negative territory resulting in growth of -2.5%for the first six months of 2012. For retail trade growth we also present two different forecast scenarios. In the baseline case we expect retail trade to reach 2% growth for the 1H2012. In the crisis scenario we expect retail trade’s growth to go into negative territory and finish the first half at -2%.

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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)
riitta.kosonen@aalto.fi
cemat@aalto.fi


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