Crisis Decline in Investments is Caused by Financial, General Economic Factors

5 november 2015

In the new bulletin on the socio-economic crisis in Russia, experts of the Analytical Center examined the effect of the general economic downturn on financing of accumulation.

Experts note that crisis decline of investments in the market economy is caused by financial (profit compression, credit tightening) and general economic (worsening of perspectives, technological shocks) factors. Companies cannot risk their financial stability and are forced to reduce expenses on investments. Moreover, decline in production leads to an even more significant decrease in investment. In the Russian context of the last decades there are two additional pressing factors: devaluation of ruble and high inflation, reflecting not only the dynamics of the business cycle, but also the shocks. According to experts, shocks of 2014-2015, - external sanctions for large companies, changes in currency exchange rates and the rise of bank credit rates for small and medium-sized business - played the role of investment recession triggers that replaced the stagnation in investments recorded in Russia in 2013.

It is also noted in the bulletin that the growth of export revenues in ruble terms due to the depreciation of the national currency in 2014-2015 caused an increase in the nominal profits at exporters. But this phenomenon, according to experts, cannot solve the problems of long-term investment financing. The growth of production prices together with deterring production factors prices caused the effect of revenue growth. At the same time, the rise of interest rates of bank loans mainly reflected problems in the financial sector, but had no significant effect on the financing of investments. The underdevelopment of the bond market in Russia does not allow companies to use long-term financial instruments - the actual maturity terms of bonds do not differ largely from the length of a bank credit.

Experts believe that in 2014-2015, as in previous crises, 'anti-crisis' model of financing investments is formed: the main meaning of changes in the structure of financing accumulation - to prevent a deep fall. There is a creation of 'fire' tools: the growth of loan volumes initiated by the largest state-owned banks, and the formation of state-owned corporation to support small and medium-sized businesses. This can be viewed as an admission of poor conditions of the investment climate after 25 years of transformation of the Russian economy, experts believe.

Experts note that this issue of the Bulletin is a logical continuation of issues No. 5 'Dynamics of investment activity in conditions of downturn of Russian economy ' and No. 2 'Change of the financial state of the Russian population in 2014-2015.'

Details in the Bulletin 'Effect of the general economic downturn on the financing of accumulation'

Other issues of Bulletins on the socio-economic crisis in Russia - in Publications