Investments in fixed assets increased by 5.9% in January-September

Investments in fixed assets in Russia increased in the third quarter by 3.1% in annual terms after an increase of 4.1% in April-June, follows from Rosstat data. In January-September, capital investments amounted to 16.4 trillion rubles, which is 5.9% more than in the same period last year.

In the structure of investments by sources of financing, own funds of enterprises prevailed – 56.3%, another 17% came from budget funds, 11% – from loans.

The growth of capital investments was recorded in scientific and technical activities (by 32.8%), in the activities of hotels and catering (by 23.6%), construction (by 22.7%), public administration and military security (by 19.5%) , in the field of culture, sports, leisure and entertainment (by 17.3%), financial and insurance activities (by 13.2%), in real estate operations (by 12.5%), in the field of healthcare ( by 11.3%), transportation and storage (by 11.1%), in mining (by 10.6%).

A drop in investments is noted in the field of information and communication – by 16.9%, in administrative and related activities – by 10.3% (at the same time, travel agencies have a 2-fold increase), in agriculture – by 6.6%, in education – by 4.3%. In manufacturing industries, capital investments decreased by 0.9%, most of all – in the production of tobacco products (by 60%), textiles (by 37.1%), drinks (by 32.2%).

The most significant contribution to growth was made by mining and related sectors, said Alexander Isakov, chief economist for Russia at Bloomberg Economics. This is the largest investor in the economy, which last year gave one-fifth of all investments in the country. In this 2022, the sector will invest in stocks of equipment, exploration and development of new deposits, as well as in transportation, in particular in tankers, the Power of Siberia 2 pipeline to China.

In addition, according to Isakov, investments in defense and military equipment were growing, which is accounted for as public sector investment. Usually the state administration is not the largest investor, but this year its contribution should increase by 2-3 times and add up to 2 percentage points (pp) to investment growth. The financial sector also contributes, Isakov said. For example, Sberbank and other large state-owned banks this year are investing heavily in replacing foreign software, rewriting their systems based on open source software products.

The growth of investment in construction is associated with the effect of the mortgage boom of previous years, believes Valery Vaysberg, director of the analytical department of the Region investment company. At the same time, the number of permits for new construction is declining year-on-year, so investment in this sector is likely to decrease in 2023, the analyst noted. As for logistics, the driver here is the reorientation of logistics chains from the North-West to the South and East, containers, agreed Weisberg. The hotel sector and catering are growing thanks to concessional lending and the reorientation of tourist demand for the domestic market, the expert points out.

At the end of the year, the Ministry of Economics predicts a decline in investment in fixed assets by 2%. The assessment was significantly improved after the release of statistics for the second quarter: back in May, the ministry expected a decline in 2022 by 19.4%, the August version of the forecast assumed a decline by 10.8%. Next year, according to the document, investments will decrease by 1%, and in 2024 they will move to growth – by 3.9%.

The first forecasts of the Ministry of Economy, like most experts, were based on historical patterns: in a typical recession, investments fall many times stronger than consumption – this was the case in 1998, 2009 and 2015, Isakov recalls. According to the economist, the 2022 recession may be the first when investment is more sustainable than consumption due to rising spending on military equipment, the accumulation of stocks of foreign equipment by companies, including the buyback of tankers and aircraft, investments in maintaining oil production, as well as import substitution software products.

Pessimistic estimates correlated with high interest rates, a forecast for a decline in exports, and generally negative expectations of economic agents, Weisberg said. At the same time, since March, the key rate has decreased by 12.5 percentage points, the physical volumes of exports have fallen by 10-15%, but in general, the business has not abandoned the lion’s share of its medium- and long-term plans, the analyst points out. Also, according to him, some support was provided by parallel imports.

Isakov expects that investments will continue to grow in the fourth quarter – by 1-2% compared to last year, and by the end of 2022 they will not fall, as the Ministry of Economy predicts, but will grow – by 4.5%. Weisberg believes that the decline in investment by the end of the year will not exceed 1%.

At the same time, next year the decline will be more dramatic – at least 5%, economists believe. Weisberg predicts a decline in investment by 5-6% in 2023. According to Isakov, the decline will be 5-10% due to budget cuts in real terms, the delayed effect of sanctions on companies’ investment programs and the curtailment of preferential mortgage lending.