The growing pace of construction production in Russia will accelerate in 2021
The PMR report, titled “Construction Sector in Russia H1 2021. Development Forecasts for 2021-2026”, indicates that in the years 2014-2017, the Russian construction industry showed negative growth in construction production each year, with a cumulative decline of 9.1% over the period. However, a positive growth trend reappeared in 2018 and continued in 2019 and 2020, with another positive forecast for 2021.
Russian construction production recorded a surprising growth in 2020, despite the widespread impact of the COVID-19 pandemic. Official data indicates that Russian construction production increased by 0.1% last year, following a growth of 2.1% in 2019 and a jump of 6.3% in 2018. Furthermore, a growth of over 2% is forecasted for 2021.
The dynamics of construction activity in Russia
The weak dynamics of construction activity observed in Russia in recent years may also be a result of:
- suppressed economic growth in recent years. From 2013 to 2019, Russia’s GDP only increased by a total of 7.5%, with significant support seen in 2018 due to a growth of 2.8%. In 2019, the country’s GDP grew by only 2.0%. However, in 2020, Russia’s GDP contracted by 3.0%, largely due to the impact of the COVID-19 pandemic, resulting in a cumulative GDP growth of only 4.2% from 2013 to 2020. Furthermore, a significant rebound in GDP is not expected in 2021, with a forecasted growth of only about 3.4%,
- significant reduction in purchasing power of the population, with a decrease in real disposable income each year from 2014 to 2017. This value decreased by 3.0% in 2020, following a cumulative reduction of 7.1% from 2014 to 2019, and it is expected to rebound by no more than 2.5% in 2021. However, the 3.0% decrease in real disposable income in 2020 translates to an overall decline of 9.9% from 2014 to 2020.
In 2020, the significant official growth in construction production in the Yamalo-Nenets Autonomous District was mainly driven by the implementation of many oil and gas-related infrastructure projects, particularly the construction of Novatek’s Arctic LNG-2 plant. In the Moscow Region, this growth was primarily due to the construction of the Moscow Central Ring Road. Additionally, the 11% growth in the Amur Region was driven by the construction of Gazprom’s Amur Gas Processing Plant near the city of Svobodny, which will become one of the largest gas processing plants in the world, and the construction of Sibur’s gas chemical complex.
Furthermore, Rosstat reported that overall construction production in Russia from January to May 2021 increased by 3.5% in real terms compared to the same period last year, with positive growth recorded in five out of eight federal districts (FD) of Russia. According to Rosstat, the total value of registered construction production in the country during January-May 2021 was 3,029 billion rubles (33.7 billion euros).
The growth of 3.5% in the first five months of the year was achieved to a large extent thanks to the impressive performance of the Central Federal District, which accounted for 29% of the country’s construction production in the period. The Central Federal District, traditionally the largest construction market among other Russian federal districts, recorded a 15.5% year-on-year growth in construction production from January to May 2021, mainly driven by a 37.4% year-on-year growth reported for Moscow alone. Rosstat reported that Moscow accounted for 49.8% of the construction production in the Central Federal District during January-May 2021.
Debt of companies in the construction sector in Russia
The confidence index in the construction industry significantly increased in the second quarter of 2021 compared to the value published in the previous quarter, rising by 3 percentage points. Moreover, in the second quarter of 2021, this index was over 8 percentage points higher compared to the value recorded in the same quarter of the previous year (-12% in the second quarter of 2021 compared to -20.5% in the second quarter of 2020), when the result was reported shortly after the WHO declared the COVID-19 epidemic a global pandemic.
Additionally, as of May 2021, the share of overdue payments in the total value of corporate credit debt in the banking system dropped to 5.9%, the lowest level since February 2015, and to 1.1% for mortgage loans. The share of overdue corporate loans in relation to all unpaid corporate loans in Russia was 4.3% in January 2014. However, in February 2020, before the outbreak of the coronavirus epidemic, this indicator was calculated at 7.2%. Unexpectedly, this indicator gradually decreased to 6.4% at the end of 2020 and further to 6.1% at the end of the first quarter of 2021.
The situation in the construction industry looks much worse, where overdue loans account for 16.1% of the total value of outstanding liabilities for construction companies at the end of the first quarter of 2021. However, this figure is lower compared to the 24.7% recorded in early February 2020 and also 6.1 percentage points lower than the percentage recorded in the same period the previous year. It is worth noting that at the beginning of 2014, this percentage was only about 5%. PMR calculated that the average share of overdue debt observed among construction companies in Russia at the beginning of February 2020 (24.7%) was the highest recorded share, at least since the beginning of 2009.
In PMR, we advise and assist in the operations of your company
Head of forecasting and econometric modelling