Falling prices for investment goods boosted capex

The acceleration of the annual growth rate of capital investments from 0.7% in the first to 12.6% in the second quarter of 2023, which Rosstat reported last week (see Kommersant on August 30), was unexpected for many experts. Analysts at Raiffeisenbank believe that this acceleration is explained by the effect of a high base in the dynamics of prices for investment goods a year earlier. Although the investment plans of the industry are high, analysts see no reason for such a high growth in capital investments in the foreseeable future, but the Ministry of Economy and VAVT believe that companies’ profits allow them to invest more.

In the second quarter of 2023, the investment deflator in annual terms fell sharply – the peak of the increase in prices for investment goods fell precisely in the second quarter of 2022 (see Kommersant-Online). At the same time, there are no obvious changes in the nominal dynamics of investments quarter-on-quarter, excluding seasonality, for the second quarter of 2023: as in the previous quarter, growth remained at the level of 5%, notes Stanislav Murashov from Raiffeisenbank, the author of the calculations. Among the leaders in the growth of capital investments are the extraction of oil and gas, metal ores, as well as chemistry, electronics, warehouse solutions and trade. Significant outsiders include transportation, construction and fuel production. In terms of year-on-year, sectors with a high share of military-industrial complex orders and “allied” sectors attract attention – these are the effects of growth in budget spending in the first half of 2023, Dmitry Polevoy from Lokoinvest notes in turn. “From the rest of the sectors, the big picture is drawn by railway transport (railway infrastructure, budget injections) and the pipe, as well as logistics / warehouses and IT,” he adds.

Raiffeisenbank believes that the slowdown in prices for investment goods yoy will continue – the effect of a high base will continue to operate, although it may be somewhat restrained by the weakening of the ruble, but this effect is unlikely to be strong. “From the beginning of the crisis in the second quarter of 2022, the dynamics of the exchange rate (for many years an important factor for the investment deflator) has ceased to play such a significant role. We explained this by the fact that among the factors in the prices of investment goods, the costs associated with transportation, parallel imports, and other processes associated with the transformation of the economy under the sanctions came to the fore, ”the bank’s analysts believe. In the structure of purchases of investment goods by industry, however, imports continue to dominate (see Kommersant on September 1), and industry, according to Rosstat, was responsible for 38% of all capital investments in the first half of 2023.

Current surveys of industrialists by the Gaidar Institute record that the growth in demand, including the state, in 2023 expanded the investment plans of companies. However, in terms of investments, the second half of the year is unlikely to repeat the success of the first, Dmitry Polevoy is convinced. “There are no reasons for the rapid growth of profits, the budget and credit impulse will change sign from plus to minus by the end of the year due to the alignment of government spending and the increase to 12% of the Central Bank rate. Finally, the ruble under 95-100/$ is another “enemy” of investments, which are largely dependent on imports. Exports will feel the impact of weakening external demand, including due to China and Asia,” he explains.

A similar opinion is shared by analysts of the Ministry of Economy and its subordinate VAVT. In their joint article “The Russian Economy in 2020-2022: Transition to a New Development Model”, published in the latest journal “Voprosy statistiki”, it is noted that it is “difficult to calculate” the current volume of capital investments from the budget in the foreseeable future, the effect of the key rate for investments will be significant, but one-time (the article was most likely written before the last increase – the authors expected it to noticeably decrease this year), but the ratio of profit before taxes of large and medium-sized companies to investments (1.65 in 2021 and 1.65 in 2021 and 32 in 2022, the authors estimate) allows them to see profit as the main source of capital investment growth in the foreseeable future. “The reorientation of only 1% of the profits of these organizations to investments in the domestic economy would further increase their volume over the past four years by almost 5% (in comparable prices), which is equivalent to an increase in the average annual growth rate by 1.1–1.2%,” – consider the Ministry of Economy and the VAVT, offering, “essentially, two options” – a PPP mechanism and an internal loan from business. “Both the first and second require business confidence in the validity and necessity of government decisions,” they conclude.

Artem Chugunov