Investment activity rebounds in 2021

RUSSIA ECONOMICS - In Brief 06 Dec 2021 by Alexander Kudrin

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Rosstat reported that investment in production capacity was up y-o-y by 7.8% in 3Q21 and by 7.6% in 9M21. Investment increased almost all across the economy apart from the mining sector (down by 0.2% y-o-y in 9M21). This decline occurred due to a 6.4% contraction of investment in the oil-and-gas. In the rest of the mining sector, investment increased. Note that investment in mining industries accounts for a little over 20% of total investment. Investment in production capacity in manufacturing was up by 7.7%.Over 59% of investments have been financed from corporate retained earnings, bank loans accounted for around 10%, and about 15% came from budgets of all levels (the rest came from other sources, such as household down payments to finance investments property construction). Given traditionally relatively small percentage of bank loans in total investments rising key rate has limited impact on investments activity. Therefore, one can expect that investment will keep increasing in 2022 even though the CBR is likely to hike the key rate in December again.Note that this measure of investment with the detailed breakdown by sectors differs from Rosstat's investment in GDP statistics by end-use. In line with the internationally accepted methodology, the latter measure incorporates some other investment expenditures, such as certain types of defense expenditures and investments in some areas of scientific research. Therefore, investment trends in GDP statistics may somehow differ from the recently published figures. Though, the overall conclusion is that investment is now on the rise, and the 2020 low base effects have evaporated (as the numbers quoted above indicate).Evgen...