Corporate profits in Russia decline to more conventional levels

Based on its recurring business survey, Rosstat reports that net profits of companies in its pool of 48,000 firms were down by 10 % in the first half from 1H16. In 2015 and 2016, net profits had soared, propelled largely by higher profits of export firms profiting from the ruble exchange rate's relative weakness. On the other hand, net profits relative to the amount of business activity in the first half of 2017 largely matched the also good levels of earlier years.

Declining corporate profits have aroused assessments of the possible depressive effects on investment. This view is supported by the fact that Russian companies typically finance roughly half of their investment out of pocket. Rosstat's investment survey also shows that insufficiency of a firm's own funds to finance investment is a significant barrier for firms to make investments. Lack of cash on hand is not a decisive factor constraining investment, however. In listing other factors that may depress investment, survey respondents also cited economic uncertainty in Russia as one of the significant problems. The reduction in profits this year has also been relatively mild and firms still hold considerable funds in domestic banks. Profits are largest in firms involved in energy or metals, and such firms typically have easier access to credit than other businesses.