The dynamics of industrial production indices (IPI, Index) fr om January to October 2022 in the regions of the Russian Federation were multidirectional. Indices performed in different ways even in regions whose economies are approximately equally dependent on the same sector. In addition, the Index decreased amid an increase in the quantity of shipments — for a number of regions, this was the result of a reduction of production in physical volumes coupled with a strong increase of prices. Below we look at IPI dynamics for ten months of 2022 by federal districts.
* Month-on-month compared to 2021.
In the Central Federal District, the IPI exceeded 100% in seven of the 18 regions. In Moscow, for example, the Index grew almost every month* with upward dynamics recorded in most of the key industries. At the same time, there was a significant decline in the production of motor vehicles (the volume of shipments fr om January to September was around half of the indicator for the same period in 2021), but this did not have a serious negative impact on the Index due to the diversification of the city’s economy — as of ten months of 2022 it had grown to 108.9% compared to the same period in 2021.
** January to October compared to the same period in 2021.
The most significant decline (to 84%**) of the IPI in the district took place in the Kaluga Region — in September and October, it fell by almost 30% compared to the Index for the same months of the previous year. The region’s industrial sector suffered due to the shutdown of some of the enterprises controlled by foreign capital: for example, the volume of production of components and accessories for motor vehicles in ten months of 2022 amounted to only a third of the indicator for the period from January to October 2021.
In the Northwestern Federal District, the IPI grew in four of the 11 regions, with the highest growth recorded in the Nenets Autonomous Okrug (probably amid growth of oil production). The Index fell to 81.9% in the Kaliningrad Region, which was the most significant decline in the federal district. Production indicators there, as in the Kaluga Region, decreased due to the shutdown of the largest car producer — in September 2022, the volume of production of motor vehicles, trailers and semi-trailers amounted to 17% of the level of September 2021. Production of other groups of products — furniture, paper and textile products, etc. — also fell in this region.
In the Southern and North Caucasian Federal Districts a serious decline of the IPI did not generally take place, and most regions are in positive territory. Some regions are supported by economic diversification, while others other are aided by their small size, which reduces sensitivity to the impact of sanctions due to an absence of foreign-controlled companies or sanctioned exporters. Agriculture accounts for a significant part of the economies of most of the regions of this district, and this has a more substantial impact on the development of the regions than industry.
A decline of the IPI was recorded in the Krasnodar Krai, Astrakhan Region and Crimea. The economy of the Astrakhan Region is more than a third dependent on the oil and gas sector, in which production volumes declined, while in the Krasnodar Krai, negative dynamics were due to the oil refining sector***. Food production, the second largest sector in the Krasnodar Krai, demonstrated growth, but this did not compensate for the reduction of oil refining and was unable to hold the Index in positive territory.*** The IPP of the petroleum product sector was 85.9% in January to September.
The Volga Federal District displayed rather modest results in the analyzed period. The Index only grew in five of the 14 regions, but there was no serious decline for the district as a whole. The leader in terms of growth was the Republic of Tatarstan (IPI at 107.8%), while the most tangible decline (to 86.2%) was experienced in the Mari El Republic, which was mainly due to lower food production (about a third of the manufacturing industry), although performance was also negative in the other sectors of the region’s economy.
In the Ural Federal District, only two regions out of six demonstrated growth of the IPI: the Kurgan Region and the Khanty-Mansi Autonomous Okrug — Yugra, wh ere the index rose to 103.5% amid growing oil production in physical terms. In the Yamalo-Nenets Autonomous Okrug, the index decreased slightly (to 99.9%) following a reduction of gas production over nine months to 86.7% of the volume produced in the same period last year.
In the Siberian Federal District, IPIs in six out of ten regions are in positive territory. The Kemerovo Region and the Republic of Khakassia showed a decrease in the index due to the sanctions imposed on the Russian coal industry, while the Sverdlovsk Region recorded a drop in the index in view of a slight decrease of the Index (to 99.4%) in the metals sector.
In the Far Eastern Federal District there is a ‘champion’ in terms of IPI decline — the Sakhalin Region (down to 75.4%), wh ere oil production in physical terms dropped by about half, and gas production by 14%. At the same time, the quantity of shipped products in the extractive industry increased, which seems to be the result of high prices for hydrocarbons. Only four out of 11 regions in this federal district had an IPI above 100% in January–October.
Investment activity in the regions has remained, despite the ambiguous dynamics of industrial production. The volume of investments in fixed assets in nominal terms increased by 21% compared to the three quarters of 2021. Nevertheless, the nominal growth of investments is mainly explained by the dynamics of the first quarter, when the increase in investments in current prices amounted to 28% year-on-year. However, the increase in the second quarter was 22%, while in the third quarter, it only amounted to 18%. Taking into account the investment deflator, the real dynamics of investments by the end of this year, according to ACRA’s expectations, may be negative, indicating lower investment activity.
According to the results of three quarters, the maximum nominal growth of investments was observed in the most economically developed regions of the country, including Moscow, the Moscow and Leningrad Regions, KMAO — Yugra and YNAO, the Irkutsk Region, the Krasnoyarsk Krai, and the Republic of Tatarstan. The share of these regions in the cumulative growth of investments exceeded 60%.
In a number of regions, investment growth can be explained by the low base effect, in which any project has a tangible effect on the dynamics (the Republic of Altai and the Republic of Kalmykia; possibly, the Chuvash Republic, and the Chukotka Autonomous Okrug).
At the same time, a number of regions have already seen a decline of investment volumes. The most notable cuts were recorded in the Arkhangelsk (-55%), Kostroma (-24%), Pskov (-18%), Vologda (-16%) and Smolensk (-15%) Regions, as well as in the Republic of Dagestan (-26%).
A notable change in the structure of regions’ investments is the growth in the share of budget funds (all budgets): in the past five years, the share of budget investments in the third quarter increased from 13% to 18%. The increase of the share of budgetary funds is due to the government’s growing involvement in major infrastructure projects.
Every year, a large share of investment is made in the fourth quarter. It can be expected that the total volume of investments in fixed assets in Q4 2022 from all funding sources will exceed the value of 2021, but there will be a decrease in real terms by the end of 2022.
Figure 1. The share of budget investments is growing
Sources: Rosstat, ACRA
Nevertheless, it is possible to forecast a further migration of the structure of funding sources towards higher budget investments, which will be due to an outflow of foreign investments, among other things.
Figure 2. Investments in fixed assets will grow in nominal terms in Q4 2022
Sources: Rosstat, ACRA
Figure 3. The investment index is declining
*fixed prices, time-smoothed index