Central Bank of Russia sees risk of lower investment by businesses due to uncertainty, sanctions

MOSCOW. Oct 11 (Interfax) - Russian businesses will be able to sustain production, but uncertainty and sanctions restrictions will put their investment programs under pressure, Kirill Tremasov, head of the Central Bank's Monetary Policy Department, Tremasov said at the Cbonds conference "Corporate Lending in Russia - 2022".

The Central Bank conducts surveys of Russian enterprises. "What I heard from everyone is that there will be no problems with current output and all capacity will work and be supported, but investment plans are under pressure almost everywhere," Tremasov said.

Rosstat has said capital investment grew just 4.1% year-on-year in Q2 2022 after soaring 12.8% in Q1. Investment grew 7.8% year-on-year in H1 2022.

"We saw that capital investment growth was quite high in the first half of the year. The numbers were really high in the first quarter, while in the second quarter they went down a little, but all the same, investment activity indicators remained high. Going forward there are major risks that we will still see a serious decline in investment activity, associated both with higher uncertainty in the economy and with the effects of sanctions - restricting access to technological development," Tremasov said.

The Russian Economic Development Ministry forecasts capital investment will fall up to 2% in 2022, drop only slightly in 2023 and grow in 2024.

Tremasov also gave answers by business managers when asked how they had succeeded in sustaining output in the current conditions. "Practically all manufacturing enterprises are entirely European production lines," he said.

"I visited a dozen enterprises, but everywhere the answers are the same: three ways, three mechanisms for keeping output stable," Tremasov said.

"Firstly, these are the local DIY experts. Especially if the lines were installed five years ago, then employees and engineers have already figured out how they work and are able to keep production afloat on their own," he said.

Then there are parallel imports.

"Thirdly and most importantly they've started to order things, to look for domestic suppliers," he said.