The lack of fixed investment is the Achilles’ heel of the Russian economy, which is doomed to stagnation unless investment picks up.

Overall investment fell 10.2% y/y in 2015 and is unlikely to recover this year. Companies have been thrown back on their own resources with retained earning rising from 45.7% of investment in 2014 to 51.1% in 2015. At the same time bank loans, which have never been a big source of investment funds, fell from 10.6% to 7.8% in the same period.

The lack of investment is strangling the Russian economy with the only sectors actively investing being in the extraction sector. Ruble devaluation has been a boon for these sectors, which have costs in rubles but revenue in dollars.  All in all extraction industries invested 10.7% more in 2015 than in 2014, with investment into oil production being especially strong.

Russia’s self-imposed sanctions and the state’s informal campaign to replace any foreign-made good with a Russian-made one (if one is available) has not resulted in much import substitution yet. Overall, manufacturing investment was down a hefty 9.5% y/y in 2015.

However, within the manufacturing sector some industries improved and chemicals, plastics and home-grown electronics all saw increased investments (by 14%, 3.4% and 12.2% respectively). But the production of “non-metal mineral goods” was hit especially hard in the manufacturing sector dragging down the headline sector number after investment fell by 41.6% in the period in that category. 

Despite the poor 2015 results in nearly every sector of the economy, there are signs that the bottom may have passed in the first quarter of this year. Construction is a key economic driver and investment contracted by a whopping 16.3% in 2015, but the monthly results show construction volume showed positive growth in February and March m/m so economists are watching the data closely now, hoping for the meager momentum to build.