Russian Investment Probably Fell for a Second Month in October

Russian investment probably fell for a second month as concern that the economy will deteriorate and rising borrowing costs prompted companies to cut spending.

Fixed-capital investment probably declined 1 percent in October compared with a year earlier, according to the median estimate of 15 economists surveyed by Bloomberg after unexpectedly dropping 1.3 percent the previous month, the first decrease since March 2011. Unemployment rose for the first time since January, a separate survey showed. The Moscow-based Federal Statistics Service will publish the data this week.

Russian companies such as steelmaker OAO Severstal are revising spending programs as the sovereign debt crisis in Europe, which accounts for 48 percent of Russia’s foreign trade, and a slowdown of China’s economy cloud the outlook for the world’s largest energy exporter. A surprise September rate increase by the Bank Rossii is choking investment, Deputy Economy Minister Andrei Klepach said last month.

“Many mining companies don’t expect a big surge in demand and that’s why major exporters are very cautious about the expansion of their investment activity,” Vladimir Tikhomirov, chief economist at Otkritie Financial Corp., said by phone yesterday. “Slight growth may continue for three to six month, and then it will depend on what happens with global economy.”

The ruble is the fifth-worst performer among more than 20 emerging-market currencies tracked by Bloomberg over the last month, losing 2 percent against the dollar. The cost of protecting Russian debt against non-payment for five years using credit-default swaps lost two points to 154, according to data compiled by Bloomberg.

Severstal, Novolipetsk

The end of government-funded projects such as preparations for the Asia-Pacific Economic Cooperation summit also contributed to the decline, Tikhomirov said.

Severstal expects its 2012 capital expenditure to be about $1.5 billion, compared with a planned $1.6 billion, Chief Financial Officer Alexey Kulichenko said on Nov. 15. Rival OAO Novolipetsk Steel predicted this year’s investments would drop 20 percent from the 2011 level as it completed planned projects.

President Vladimir Putin, who returned to the Kremlin for a third term in May, ordered the government to boost investment to 25 percent of economic output by 2015 and 27 percent by 2018, from 21 percent last year.

Russia’s economy grew 2.9 percent last quarter from a year earlier, the slowest pace since it started recovering from a recession in the first quarter of 2010. Economic risks don’t yet require the central bank to take action, Bank Rossii First Deputy Chairman Alexey Ulyukaev said Nov. 13.

Interest Rates

Bank Rossii refrained from raising interest rates for two months after a surprise increase in September to hold back inflation that exceeded the central bank target of 6 percent. In October, inflation unexpectedly slowed to 6.5 percent from 6.6 percent previous month

“The business perception of the current situation, capital outflow, increased borrowing costs and the interest rate play a negative role and hamper investment,” Vladimir Pantyushin, an economist at Barclays Plc’s investment-banking unit in Moscow, said by phone yesterday.

Industrial-output growth unexpectedly eased for a third month in October, with utilities production declined and manufacturing grew the weakest since March.

“The situation in industry remains difficult,” Dmitry Polevoy, a Moscow-based economist at ING Bank for Russia and Kazakhstan, said by telephone yesterday. “Decelerating manufacturing indicates slowing consumer demand.”

Retail sales probably increased 4.5 percent last month from a year earlier, according to the median forecast of 16 economists, surveyed by Bloomberg. Household spending accounts for half of Russia’s gross domestic product and consumption has been slowing since June.

October real wages rose 6.1 percent from the same month of 2011, according to the median estimate of 12 economists. The unemployment rate increased to 5.3 percent from 5.2 percent in September, a survey of 13 economists showed.

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