Downward Trend in Investment Demand Still Prevails

In 2014, the situation in the investment sector of the economy is determined by slowdown of business activities as early as H2 2012. Low investment activities throughout 2013 and a lack of the needed reserves in building determined a drop in investments in 2014. The share of investments in capital assets in Q1 2014 amounted to 11.5% of GDP and was 1.1 p.p. lower than the level of the respective period of the previous year, while the contribution of building into GDP fell to 4.6% against 5.1%.

In Q1 2014, investments in capital assets in real terms amounted to 95.2%, while in January-May 2014, to 92.6% as compared to the respective period of the previous year. In Q1 2014, the volume of work completed in building amounted to 96.4%, while in January-May 2014, to 96.1% as compared to the respective period of the previous year. It is to be noted that in January-May 2013 investment activities were already in the state of stagnation.

The dynamics of investments in capital assets is diversified by economic entities. In Q1 2014, in the segment of large and mid-sized enterprises investments in capital assets stopped falling. If in Q1 2013 investments of large enterprises amounted to 95% of the index of the previous year, in Q1 2014 they increased by 1.8%.

However, in the beginning of the year a 20% decrease in mid-sized enterprises' investments intensified a drop in investments in capital assets in the economy in general. It is to be reminded that in Q1 2013 growth in investments in the segment of small enterprises amounted to 7.1% and contributed to stabilization of the situation in the investment and building complex at the level of the indices of Q1 2012.

In Q1 2014, as in the previous two years in the pattern of investments in capital assets there was growth in the volumes and share of investments in housing development. So, in Q1 2014 entities of all the forms of incorporation built 231,100 apartments with the total floorspace of 13.6m sq. meters which is 31% higher than the index of the respective period of the previous year. Individual developers built 6.4m sq. meters of housing or 46.7% of the total volume of housing commissioned in Q1 2014.

In Q1 2014, the structural specifics consisted in growth in quantitative parameters of investments in development of nonresidential premises and facilities with a reduction of investment costs on machinery and transportation vehicles. The share of investments in building of industrial and social projects increased by 3.2 p.p. as compared to the respective period of the previous year.

In Q1 2014, the share of machinery in investments in capital assets decreased by 4.9 p.p. as compared to the respective period of the previous year which situation is probably justified by both insufficient volumes of the reserves for installation and incomplete building.
In Q1 2014, there were a revival of growth in investments in mining, a decrease in growth rates of capital investments in manufacturing and continued decline of investment demand in utilities (electricity, water and gas). As a result, on the basis of the outputs of Q1 2014 growth in investments in industry amounted to 3.3% as compared to the index of Q1 2013, however, it did not permit to neutralize the negative effect of a drop in investments in industry in Q1 2013.

In manufacturing, there was dynamic growth in investments in capital assets in petroleum production (135.1% in Q1 2014 against Q1 2013), transport equipment manufacturing (128.8%) and textile and sewing industry (200.0%).

A negative contribution to the dynamics of investments in manufacturing was made by such industries as wood-working and wood products production (7.82% in Q1 2014 on Q1 2013), chemical industry (84.7%), the pulp and paper industry (51.9%), manufacturing of rubber and plastic articles (59.0%) and building materials industry (77.8%).

In the context of stimulation of economic growth, a priority is attached to development of infrastructure. In the transport industry, in the beginning of 2014 expansion of investment demand was due to growth in the volume of work related to development of pipeline transportation.

Olga Izryadnova, Head of the Structural Policy Department