Russia’s construction industry will continue to struggle

Byjirong

Updated Tue, 23 Feb 2016 14:55:50 GMT

The construction industry in Russia contracted by 7.5% in 2015, and will continue to struggle due to the deteriorating business environment, currency depreciation, Western sanctions, a lack of foreign capital investment and a decline in oil price.

According to Timetric’s Construction Intelligence Center (CIC), the industry’s output value declined from US$197.3 billion in 2014 to US$182.5 billion in 2015 (measured at constant prices and at 2010 US dollar exchange rates). It is expected to contract further in 2016, by close to 1% - before steadily regaining some growth momentum. Timetric’s CIC forecasts the industry’s output value to rise at a compound annual growth rate (CAGR) of 2.52% over the forecast period (2016–2020); up from -2.19% during the review period (2011–2015).

The industry will be supported by investment related to the Socio-Economic Development 2020 program, under which the government aims to develop the country’s road, housing, rail, airport and other related infrastructure. Moreover, the upcoming Fifa World Cup 2018 will also be a source of activity. The event is expected to create opportunities for businesses, attracting investments in the leisure and hospitality buildings and retail buildings categories.

However, there are risks associated with the outlook for the construction industry in Russia over the forecast period. Notably, a continuation of Western sanctions and low oil prices will greatly undermine growth prospects over the next couple of years. The country generates 70% of its total export earnings from the oil and gas sector.