the supply of investment goods is shrinking amid high investment activity
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In December 2023, the index of supply of investment goods determined by the Center for International Relations indicated a continued weakening of investment activity. The supply of such products, taking into account seasonality, decreased by 1.1% compared to November. The reduction in investment activity has been occurring since August 2023, and by December the supply of goods had already shrunk by 7.8%. At the same time, its current level is close to the high monthly average value of the “pre-pandemic” 2019.
A reduction in the supply of investment goods is observed both in terms of imported machinery and equipment, and construction materials (see chart). The supply of domestic machinery and equipment is growing, but this only partially compensates for the rapid decline in imports in recent months (the decline in the overall supply of machinery and equipment stopped only in December). “The decline in investment is based on the fall in income of commodity producers (which began at the end of 2022), “reinforced” by the consistent tightening of monetary policy,” conclude the authors of the study.
In the third quarter of 2023, growth in fixed capital investment slowed. In the second quarter it was 5.4%, in the third – 2.3% (seasonality removed, CMACP estimates). “This dynamics is in striking contrast to the increasingly negative dynamics of the supply of investment goods and is explained either by the continuation of the construction boom in the third quarter (it died down in October), or by such a specific component of investment as military equipment,” analysts noted.
Despite the decrease in the supply of investment goods, estimates of changes in investment activity in the fourth quarter of 2023, made by the Central Bank based on surveys of companies, increased to 8.9 points (from 7 points in the third quarter). Investment activity expectations for the first quarter of 2024 indicate that it will remain at the high level achieved by the end of 2023. “This is a curious phenomenon (low sensitivity of investments to monetary conditions), contrary to both economic theory and common sense. Why this happens is not entirely clear. Perhaps due to the fact that many investment projects are of a forced nature (including military ones) and will be implemented at any cost of resources,” argue analysts of the MMI Telegram channel.
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