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24 Jul, 2007 06:49

Fast pace of Russian investments in fixed assets

The growth of Russian capital investments in fixed assets has almost matched that of China, reaching a record 27% in June.

Infrastructure projects – namely real-estate, mining, power-generation and railways – enjoyed most of the cash inflow at a level not seen since 1992.

“There are three drivers for that: first of all, public money spent out of a budget and by state-owned monopolies like Gazprom, Rosneft, RAO UES, Russian Railways, as well as private money coming from Russian companies and from foreign companies operating in Russia. Essentially this is FDI,” Aleksandr Morozov, Chief Economist, HSBC Russia, comments.

Higher investment levels might have a downside. They drive up money supply, putting pressure on consumer prices and potentially leading to higher inflation.

However coupled with a fast pace of real wage growth – up 15% last month – robust investments improve the macroeconomic outlook for the whole year.

The strong growth numbers of investments as well as strong growth numbers of consumer demand we saw in the first half of this year already lead us to revise our growth projections for this and for the coming year. It is already 7.5%

Aleksandr Morozov, Chief Economist, HSBC Russia


“The strong growth numbers of investments as well as strong growth numbers of consumer demand we saw in the first half of this year already lead us to revise our growth projections for this and for the coming year. It is already 7.5%,” Mr Morozov added.

Some analysts say higher investment levels are here to stay driving industrial production into double-digits this summer.

Evgeny Nadorshin, Chief Economist at the Trust-Bank is Moscow believed that: “We do not expect considerable slowdown in the second half of 2007. Slowdown might happen because 27% is probably extraordinary growth but it still may be like 20% or slightly less like 15% which is pretty high according to our historical data.”

Others argue it won't last long, as it reflects fund-raising programs of state-owned companies.

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