Investments in Fixed capital Grow Faster than GDP, but their Efficiency is Downgrading

As a result, according to adjusted data, the volume of investments in fixed assets has increased by Rb 213.3bn, as compared with the previously published data and reached Rb 7.5246 trillion. The growth rate of investment in fixed assets in Q3 2012 has increased to 107.3% against the indicator of 101.4% in the relevant period of the last year. Herewith, the scope of construction works remained the same, i.e., 97.3% of the index noted in Q3 2011. Adjustment of indicators did not affect the overall trend of quarterly slowdown in investment in fixed assets.

Therefore, the growth rate of investment in fixed assets within January-September 2012 has increased by 10.3%  versus 105.0% in January-September 2011, while the scope of construction works has grown by 1.9% against 4.1 %.

Impact of investment on economic growth dynamics in this situation cannot be assessed unambiguously. Note that the increased growth rates of investment in fixed assets against GDP dynamics with the sustained scope of construction works reduces the efficiency of capital utilization, which generally provides a negative impact on economic growth dynamics.

On October 10, 2012 the Ministry of Economic Development of Russia has reduced the GDP forecast to 3.6% (-1 p.p.), having concurrent downgraded the estimates of industrial production to 3.2% (-0.4 p.p.), exports - to 0.4% (-1.3 p.p.), imports – to 5.5% (-1.3 p.p.). Note that at the increased inflation rate to 7% (+0.5 p.p.), the slow-down of turnover is estimated at 5.7% (-0.4 p.p.). At the same time, the Ministry of Economic Development of Russia has increased the outlook on capital outflow in 2012 from $60-65bn to $73-75bn.

O.I. Izryadnova,  Head of Structural Policy Department