The construction sector, a wave of bankruptcies

The business climate in the Russian construction industry remained in the area worst values over the past 7 years, experts of the Higher school of Economics (HSE).

Despite signs of stabilization of macroeconomic indicators and GDP growth for five consecutive quarters, the volume of construction work continued to decline. According to Rosstat, in January—October of 2017, a decline of 2.1% and cumulatively over the three years of the crisis has exceeded 20%, according to Finanz.

Number of bankruptcies, the construction sector is already ahead of all types of businesses. According to the Rating Agency building complex (RASK), last year the number of registered bankruptcies of building companies increased by 17.3%. Insolvent pleaded 3 thousand 180 organizations, the vast majority of which (66%) — the old-timers who worked on the market for over 7 years. In the third quarter of 2017, the market took nearly 700 construction companies, which was a record all-time statistics, the study of the Center for macroeconomic analysis and short-term forecasting (CMASF).

As says the Director of the Center for market research HSE George Ostapkovich, bankruptcy, sweeping the construction industry, has become “a significant economic and social problem” and, according to him, the light at the end of the tunnel is not visible.

“According to a recent business survey, approximately 16-17% of the total number of the surveyed contractors are in the verge of bankruptcy,” — said the expert: it is firms that 3-4 blocks continuously deteriorating financial condition, the falling volume of construction and installation work and seriously reduced the portfolio of new orders.

A survey of top managers of construction organizations, conducted in November showed that 40% of them still complain that the portfolio of orders “below normal levels”. The composite index of business confidence in the fourth quarter rose a percentage point, but its value is minus 15% is the most low in comparison with all the basic industries, which Rosstat estimates.

The building “retains its status of the most problematic among all of the basic economic activities of the country” indicates Ostapkovich.

According to him, the depression in the sector is due to “sluggish demand” from all key investors, he explains: the problem of the budget lead to a reduction of the state order; a record from the 1990’s, the collapse in incomes reduces the effective demand for housing and the corporate sector is committed to invest amid falling profits and the government’s plans to increase the tax burden.

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