In Q1 2017, for the first time after a 4-year 'pause', the index of investments in fixed assets moved into positive zone, with a growth rate of 102.3% relative to the previous year. The volume of investments in fixed assets in terms of share in GDP in Q1 2017 stayed approximately at its average recorded at the start of each year during the period 2014–2016.

The structure of sources of funding for investing in fixed assets in Q1 2017 demonstrated a shrinking share of companies' own resources, because they prefer to borrow capital on the market in order to optimize their spending opportunities. The share of bank loans as sources of funding for investment in fixed assets over January–March 2017 increased to 11.7% due to the growing share and volume of loans taken from foreign banks, which fully offset the decline, in absolute terms, of the volume of foreign investments. The situation became somewhat more complicated due to the surge of net capital outflow to $ 15.4bn in Q1 2017 vs. $ 8.8bn in Q1 2016.

As far as the composition of attracted funding invested in fixed assets is concerned, the role of budget sources somewhat altered: over the first 3 months of 2017, the share of government capital investment amounted to 0.9 of GDP, having slightly shrunk relative to the previous year.

In Q1 2017, after the long 'pause' of 2013–2016, the investment activity of big holding companies, joint-stock companies and financial and industrial groups with public stakes demonstrated a certain resurgence of growth, a phenomenon that reflects a gradual adaptation of businesses to the new conditions under which the economy is now functioning.

In response to changes in the level of personal incomes, the investment activity in the real estate market has been waning. In Q1 2017, the shrinkage, in absolute terms, of the volume of personal investment in shared construction projects translated into a decline in the total volume of funding available for the implementation of shared construction projects funded by organizations and the population. As seen by the period-end results of January–March 2017, the index of new housing units put on the market amounted to 84.2% relative to the corresponding period of the previous year. Meanwhile, the index of new housing units completed by individual contractors amounted to only 76.5% of its previous year's value.

The deepening decline in the building construction sector that occurred in early 2017 was quite predictable, as it was determined by the trends that had been visible over the previous 15 quarters. As indicated by the period-end results of January–March 2017, the construction work volume index amounted to 95.7% relative to the corresponding period of the previous year.

Overall across the Russian economy in Q1 2017, the volume of investment in the tradable sector amounted to 98.0% relative to the previous year, while that on investment in the non-tradable sector gained 3.0%. The changes that occurred in the structure of investments in fixed assets by type of economic activity were shaped by a slower growth rate of investments in fixed assets in industry alongside a deepening plunge of investment in building construction projects in manufacturing industries. A comparative analysis of the structure of investments by type of fixed assets points to a very low adaptation indices of domestically produced capital goods to the altering demand for them. In 2016 and early 2017, the recovery of a positive vector in the movement of imports of investment goods became one of the factors that pushed the index of investments in fixed assets into positive zone.

It should be noted that the structure of investments in the transport sector in its present form reduces the risks created by the historically determined disproportions in the development levels of different transport types. Another positive factor is the growth of investments in the retail and wholesale commodity distribution networks oriented to the future expansion of the domestic market. A promising factor, from the point of view of human capital improvement, has been growth of investments in information technologies, education, culture, sports, while the simultaneous shrinkage of investments in healthcare has given rise to some concerns.

In view of the period-end results of Q1 2017, if the existing conditions for funding investments in fixed assets capital are maintained, the share of government investment in GDP declines, and private investors continue to be active on a very modest scale, it can be expected that in 2017, the economy will demonstrate a stabilization of investments in fixed assets at the previous year's level, while the implementation of investments projects in the infrastructure and welfare sectors will produce positive effects.

Olga Izryadnova - Head of Structural Policy Department