Russia’s fixed investment was up 3% y/y in the third quarter, largely driven by a few state sponsored mega-projects.

The result was still slightly disappointing as the third quarter fixed investment growth was down from growth of more than 6% in the second quarter, but investment was up by 4.2% y/y in the first nine months of 2017.

Russia’s economy is recovering but investment, one of the three big economic growth drivers (consumption and construction are the other two) needs to be in double digits for economic growth to really accelerate.

The recovery of fixed investment amongst large and medium-sized firms, as well as government investment, slowed in the third quarter. In the first nine months of the year, the growth was around 1.5% y/y in these groups.

Growth of investment by small firms, grey economy actors and households is growing much faster, according to Rosstat's estimate and was up around 12% y/y in January-September.

But the biggest gains are in the state backed mega-projects. After a couple years of decline, investment in pipeline transmission increased by more than 25% in January-September.

“Without this growth, recorded investment would have shown no increase, and total investment growth would have been about 3%,” Bank of Finland Institute for Economies in Transition (BOFIT) said in its weekly update on Russia.

The electricity sector has been a major drag on the recovery in investment with the sector's recorded investment falling in January-September by nearly 10%.

Manufacturing (excluding oil refining) also saw investment fall by about 6%. Sharp drops in fixed investment were registered in a few large manufacturing branches, most notably metal industries.

Investment in oil & gas production contracted by 1%. Third-quarter investment in oil refining showed a sharp increase after a couple years of steep decline.

The mega-projects have also given a sharp regional bias to investment activity. Well over half of the increase in investment came from the City of Moscow in the first nine months of the year, with much of that going into land transport projects as the mayor continues to invest into the capital’s mass transport system. Additionally, about 30% of investment growth was generated in the Amur region, where Gazprom is building the Power of Siberia gas pipeline to China, and the Crimea, where the state has been building the Kerch Strait Bridge to connect the Russian mainland directly to the annexed Crimea peninsular. That project is almost finished and investment into the region should fall sharply in 2018 as a result.