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Economic monitoring of Northwest Russia 2/2011: Economic recovery continued but global uncertainties overshadow future development

04.01.2012

In the first half of 2011, the social and economic development of St. Petersburg was stable. Industrial production, communication and retail trade recorded somewhat solid growth. However, the construction sector experienced a considerable decline. Notable increase in electricity and heating tariffs and in social payments put strains on retail development.

Economic recovery in the Leningrad province continued. Industrial production and retail sales experienced firm growth and exports were especially surging. This was largely owed to the versatile regional economy, proximity to Saint Petersburg and high oil prices. However, the regional investment sphere is suggesting some signs of potential negative reflections from global economic uncertainty. Foreign investments have declined substantially concerning both loans and direct investments. Furthermore, the outflow of foreign investments from the region has intensified.

After a recovery year in 2010, Karelia’s economy remained on the growth path during the 1H2011 but showed stagnation or decline on many fronts including industrial production. Export growth leaned heavily on high global raw material prices and if the global economy faces a second wave of the crisis in 2012, the Karelian economy will likely plunge back in to a recession. Positive developments also took place in the 1H2011. The amount of cargo increased, retail sales were robust to high inflation, corporate profits soared and very high growth figures were recorded in both domestic and foreign investments.  The biggest news in Karelia in 2010 was the resignation of the twelve-year leader of the region, Governor Katanandov. The successor Andrei Nelidov has tackled the problem of the high share of loss-making companies in Karelia, and promised notable changes in the regional economic development strategy.

Judging by the results of 2010, the Murmansk province seemed to be overcoming the negative consequences of the world financial crisis of 2008/2009. However, during the 1H2011 there were some signs that this recovery might be short-lived. 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.

Reports are available at:

Saint-Petersburg
http://cemat.aalto.fi/en/electronic/economicmonitoring/reports/saintpetersburg/

Leningrad province
http://cemat.aalto.fi/en/electronic/economicmonitoring/reports/leningrad/

Republic of Karelia
http://cemat.aalto.fi/en/electronic/economicmonitoring/reports/karelia/

Murmansk province
http://cemat.aalto.fi/en/electronic/economicmonitoring/reports/murmansk/

Further information: Director, Prof. Riitta Kosonen, riitta.kosonen [at] aalto [dot] fi

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