BOFIT Viikkokatsaus / BOFIT Weekly 2017/35

The volume of fixed investmentrose by well over 6 % y-o-y in the second quarter. For the first half, growth was nearly 5 % y-o-y. Fixed investment was still down by 10 % from the first half levels in 2012 to 2014.

Rosstat reports that investments covered by within-year statistical recording increased by about 2.5 % y-o-y in the first half. These investments come basically from large and mid-sized firms and the state, which altogether account for three quarters of total investments. Instead, Rosstat estimated that other investments, which include those of small firms, grey-economy operators and most household investments, rose by more than 10 %. This is similar to the years of recovery and growth in the wake of 2009 recession, when these investment categories also experienced significantly higher growth than the core statistically recorded investments.

Regarding the investments by large and mid-sized firms and the state, investment in oil & gas production, after rising in the past couple of years, contracted in the first half by about 1 % y-o-y. Investment in oil refining remained at the same low level as in 2016. Investment in pipeline transmission of oil & gas, however, increased by 25 % after several years of decline. Investment in the electricity sector fell strongly for the fifth consecutive year. Manufacturing investment (excluding oil refining) contracted for the third year in a row.

The brisk recovery in fixed investment, especially in the second quarter, has drawn observer attention to the impact of investment waves caused by relatively one-time expenditures on large projects. The CBR, for example, noted spending on the Power of Siberia natural gas pipeline running in eastern Russia and to China, construction of Kerch Strait road-rail bridge to Crimea, and the 1 July deadline for companies to complete investments in new cash registers and related systems.

Among Russia's eight governmental areal subdivisions (Federal Districts), fixed investment recovered fastest in the Far East Federal District (up 20 %), as well as in the Central Federal District (15 %), e.g. in Moscow. In
contrast, fixed investment continued to decline in the Volga and Siberia Federal Districts. In Russia's more than 80 administrative regions, investments in 36 regions increased substantially, while investment continued to decline in over half of the regions. Investment revival in Moscow contributed significantly to the recovery in Russian investment overall, as did investment in the commodity-producing regions of Tyumen, Sakha-Yakutia and Amur. Russian investment in Crimea, which rose by over 250 %, was largely financed with state budget funds and had a large impact on the statistical growth figure of Russia's total fixed investment. The increase in investment in these areas partly reflects the above-mentioned large projects.