Russian woes continue

The slump in construction output in Russia is continuing, with the latest figures from research company PMR showing that output decreased 4.5% year-on-year in 2014, although growth is predicted for 2016.

The 2014 fall, which followed expansion of 0.1% a year earlier, is highlighted in a PMR report called Construction Sector in Russia H1 2015 – Development Forecasts for 2015 to 2020.

According to PMR, the key factors contributing to the decline in construction activity in the past few years included weak economic growth, with Russia’s GDP growth rate falling to 0.6% in 2014 from 1.3% a year earlier and expected to contract more than 3% in 2015.

PMR also pointed to a lack of growth in fixed capital investments, which underwent a 2.7% year-on-year decline in 2014, following a weak 0.8% growth recorded a year before. It said this indicator expanded by 10.8% in 2011 and 6.8% in 2012.

Among the key factors that contributed to the decline in fixed capital investments in 2014 were the Rouble’s double-figure devaluation – which made imports significantly more expensive – the sharply-deteriorating macroeconomic performances in Russia, and negative revisions for economic development in the near future.

Civil engineering

According to PMR, the construction industry in 2013 had been impeded only by civil engineering construction. This trend continued in 2014, but a fall in non-residential construction activity was also recorded last year.

Many new developments have been postponed, and this has ultimately delayed the expansion of Russia’s still struggling construction industry, it said.

A substantial proportion of civil engineering construction output is generated by state-funded transport infrastructure construction projects, and by incentives rolled out by companies in the oil and gas, and the mining and metallurgical industries.

Also, PMR reported, construction output in the Southern Federal District collapsed by 18.8% in 2014, which it said was mostly a reflection of the completion of the preparations for the 2014 Sochi Winter Olympics. This work provided solid support for construction output in the region between 2010 and 2013.

In addition, construction output in the Urals Federal District fell by around 5% last year, mostly because of a reduction in investment in oil and gas, and in electricity generation infrastructure-related projects.

According to PMR, the key impediments to civil engineering construction output in 2014 included the fact that the federal road fund’s budget recorded a more than 2% year-on-year contraction in real terms.

Growth

However, PMR said that the construction industry in Russia was projected to resume growth in 2016.

It attributed this to the low base effect created after a notable contraction in 2015, and also preparation for the 2018 FIFA World Cup, which will start to go through the active stages of many of its large-scale infrastructure projects. Also, it said inflation in Russia would start to ease gradually in the second half of 2015, creating a background for the Central Bank to make further rate cuts which would ultimately encourage banks to offer less expensive loans.

The research group added that political tensions between Russia and the developed countries were expected to ease gradually from 2016 onwards, with Russia more interested in improving deteriorating relationships, as oil prices would not rebound to triple-figure values in the near future. It added that oil prices were of critical importance for the Russian economy.