A dramatic slump in capital investment by Russian companies in January pointed on Wednesday to Russia’s ailing economy continuing to deteriorate fast.
There was no sign in data of a boost from preparations for the Sochi Olympics as investment fell by 7 per cent compared with a year earlier, a huge undershoot compared with analysts’ forecast in a Reuters poll of a 0.5-per-cent rise.
“It’s terrible. It’s like in 2009,” said Natalia Orlova, an economist at Alfa Bank, referring to the year when Russia’s economy shrank by 8 per cent as the global financial crunch wreaked havoc on corporate finances.
The unexpected plunge in investment last month comes after a year of stagnation. It fell by 0.3 per cent in 2013, according to official estimates – a major factor behind lacklustre economic growth of 1.3 per cent last year.
The investment malaise underscores the poor state of Russia’s business climate and boosts the argument of those calling for structural reforms to diversify an economy that is too dependent on stagnant natural resource sectors.
The central bank lowered its mid-term economic growth forecasts on Tuesday, anticipating growth of below 2 per cent until at least 2016, in an acknowledgment that Russia’s economy will be sickly for some time.
But many analysts had expected that Russia would see a modest economic rebound in the early months of this year, helped by an expected cyclical recovery and the impact of investments linked to the Winter Olympics now under way in Sochi.
“The bad surprise is that we thought the Olympics preparation would help, at least in the first quarter of this year,” said Orlova. “A 7-per-cent decline [in investment] completely kills this expectation.”
The latest data comes after earlier bad omens, such as PMI data for manufacturing and services for January, which pointed to an economy that was practically stagnant last month, and coincides with turmoil on global financial markets as investors flee emerging market assets.
Alfa’s Orlova said the slump in investment in January may be linked to the recent slide in the ruble, which has made it profitable for Russian companies to buy foreign currency instead of investing in production.
The ruble continued to plunge on Wednesday, shedding 0.8 per cent against the U.S. dollar and hitting a record low against a dollar-euro basket used to gauge central bank interventions.
Other data released by the Federal Statistics Service on Wednesday also disappointed expectations, with retail sales rising by 2.4 per cent, below analysts’ forecasts.
Unemployment remained relatively low at 5.6 per cent, however, which may help to maintain wages growth and consumption. Nominal wages rose 8.7 per cent in January, with real wages up 2.5 per cent.
Darya Isakova, economist at VTB Capital, said that although the overall data was disappointing, the dramatic slump in investment may be the result of statistical quirks linked to Russia’s long holiday in early January.
Investment growth “is negative or close to zero, but not such a sharp move as it appears,” she said. But she added that the positive unemployment data was also probably temporary and the rate would rise.
“The key point is worsening activity in local demand,” she said.