Eastern European Markets
Eastern European Markets
Business Barometer 2001 for North-West Russia
RUSSIA'S ECONOMIC GROWTH EXPECTED TO ACCELERATE IN 2001

Russian business leaders expect the country's economic development in 2001 to be better than in the previous year. Growth in turnover, investments and labour force size is expected to continue and accelerate. The general economic outlook and the entire national economy are also expected to strengthen, and the personal finances of executives are set to increase during 2001.

These details are shown by a second barometer measuring the economic development of Russia prepared by the Central Chamber of Commerce of Finland, for which 1150 business leaders were interviewed in St. Petersburg, Moscow and elsewhere in North-West Russia.

Increased faith in the future

The greatest growth is expected in the turnover of Russian enterprises. The balance figure of expectations for change in turnover will rise from +23 in 2000 to +39 in 2001. The balance figure of general business expectations will improve from +29 in 2000 to +38 in 2001. The number of investments is expected to increase in 2001. The balance figure of investment expectations in 2000 is +27.

Growth in labour force size is expected to accelerate to some extent. The balance figure of expectations for change in labour force size will improve from +19 in 2000 to +23 in 2001. The executives of enterprises are confident that their personal finances will improve. The balance figure for expectations concerning the development of personal finances of executives will rise from +18 in 2000 to +24 in 2001.

The enterprises have great confidence that economic conditions in Russia will improve in 2001. The balance figure for expectations concerning the development of economic conditions in Russia on a macro level will rise from -1 in 2000 to +23 in 2001.

The balance figures are obtained by subtracting the proportion of respondents who anticipate deterioration from the proportion of those who anticipate improvement.

Growth to accelerate in all sectors as well as near the EU border

All sectors expect increased growth in 2001. Industrial enterprises are relatively more optimistic. When examining expectations by industrial subsectors, expectations relating to growth in turnover and labour force size are more common in the mechanical engineering and chemical industries. Investments are expected to increase, especially in the mechanical engineering, construction and information technology industries. Expectations concerning the improvement of general business conditions are relatively more common in the mechanical engineering and information technology industries.

In the commercial sector, growth expectations of enterprises for 2001 are of an average level. Enterprises in the service sector also expect growth to accelerate in 2001. However, these expectations are held by fewer enterprises.

Enterprises engaged in foreign trade as well as enterprises with more than 50 employees are particularly likely to expect improvement in developments in 2001 compared with the previous year. Enterprises with less than 10 employees, as well as those serving the domestic market, have relatively weaker expectations about positive economic development.

Growth is particularly expected to speed up near the border between the European Union and Russia: in St. Petersburg and elsewhere in North-West Russia. Growth in Moscow is expected to be relatively weaker, or even to fall in 2001.

Optimism, yet with considerable uncertainty

However, uncertainty about the future overshadows the optimistic expectations of enterprises for 2001. On average one in every five enterprises has no view on the direction in which expectation variables will develop in 2001.

Actual development in 2000 mostly as expected

Expectations concerning turnover, general economic trends in enterprises and the Russian economy did materialise in 2000. However, developments in labour force size and personal finances of executives in 2000 failed to match expectations.

Putin's actions seen cautiously positive

Russian executives estimate that President Putin's actions over his first ten months in office have had a mildly positive impact on the business environment for enterprises. Sixteen per cent of enterprise executives believe that Putin's actions have improved the business environment for enterprises while six per cent believe they have weakened it. Seven out of ten enterprises (70%) state that Putin's actions have had no impact at all on their operations.

Industrial enterprises, exporters and enterprises operating elsewhere in North-West Russia are more likely to see Putin's actions as positive.

One in every five executives believes that Putin's actions have improved investment opportunities in Russia for foreign enterprises. This view was relatively more common among service enterprise executives, exporter executives and executives of enterprises operating elsewhere in North-West Russia. One in ten believes that investment opportunities for foreigners have deteriorated due to Putin's actions.

Reasons for growth

What factors explain the strong turnaround in the Russian economy over the past year? Economic growth in Russia is estimated to have been around 6-7 per cent in 2000. The barometer results predict at least the same level of economic growth in 2001.

The high price of commodities on the global market and the devaluation of the rouble after the 1998 crisis have particularly supported strong economic growth in Russia. Export has increased as a result of devaluation. Likewise, the price of imported goods has increased. For this reason, industries to replace imports have been developed in several sectors. Growth has also been supported by a large surplus in foreign trade, increase in domestic demand, improvement in the real income of the population and better economic conditions for enterprises. However, in order for economic growth to continue in Russia, it is estimated that considerable structural changes will be required over the next few years.

Overview of the barometer

A total of 1150 Russian enterprises were interviewed for the barometer: 300 in St. Petersburg, 500 in Moscow and 350 elsewhere in North-West Russia (Pskov, Novgorod, Petrozavodsk, Vyborg, Murmansk, Arkhangelsk and Syktyvkar). Of all enterprises interviewed, 40 per cent were industrial, 30 per cent in the field of commerce and 30 per cent in the service sector. Those interviewed were chief executives of their enterprise.

The interviews were carried out in October 2000 by the Russian subsidiary of Taloustutkimus Oy, commissioned by the Central Chamber of Commerce of Finland.

Business leaders were asked about developments in 2000 compared with the previous year (1999) and about prospects for the year ahead (2001) compared with 2000. The respondents assessed developments in the following variables: enterprise turnover, enterprise labour force size, enterprise investments, general economic outlook for enterprises, personal finances of the respondents and the general economic situation in Russia. The survey method was qualitative. The respondents assessed whether development had improved / would improve (+), remained unchanged / would remain unchanged (0) or deteriorated / would deteriorate (-) compared with the previous year.

Results are reported by using balance figures. Balance figures are obtained by subtracting the proportion of those perceiving or anticipating deterioration (-) from the proportion of those perceiving or anticipating improvement (+).

If the balance figure is positive, the variable increases. If the balance figure is negative, the variable decreases or deteriorates. Where the balance figure is 0, the variable remains approximately unchanged compared with the previous year.

The North-West Russian business barometer prepared by the Central Chamber of Commerce of Finland illustrates the views of business leaders in the region concerning the development of the Russian economy, their enterprises and their personal finances once every year. A second North-West Russian barometer to be published now has been prepared on an equally extensive basis as the first barometer, published in December 1999.

The Central Chamber of Commece of Finland is the central organization of 21 chambers of commerce , which have about 15.000 memebers. Membership is voluntary. The Chamber promote free competition, marketeconomy and free worldtrade .


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