Investment activity growth slowed considerably in the third quarter and is likely to go further down, according to a study of the Development Center Institute of the Higher School of Economics.

Statements about the early phases of a full-fledged economic growth in Russia are not justified and are an attempt at wishful thinking. The thesis that Russia is confronting a threat of a new recession is at the center of new research titled Comments of the State and Business prepared by the Development Center Institute of the Higher School of Economics.

“The growth of investment activity in the economy, which began in the first quarter of this year and that amounted to 4.2 percent in the nine-month timeframe from January to September (for the full range of companies with respect to the corresponding period of the previous year) slowed seriously or even become negative in the third quarter, if one considers data from previous seasons,” Higher School of Economics experts say.

At the same time, a revival of bank lending to the real sector of the economy accompanied a decline in profits. Against the backdrop of high risks and sluggish domestic demand, the profit reduction may lead to a further decrease in investment activity in general.

“There is a slowdown in investment growth. Coupled with slower growth in industrial production and in the economy as a whole, these developments call into question the beginning of a fully-fledged growth phase. For all the talk about recovery, it was probably wishful thinking,” the report’s authors suggest.

As noted in the study, the current situation demonstrates that “the Russian economy is unprepared to leave the state of stagnation,” and even raises the poses the threat of “a new recession.”

“While the onset of a recession is too early to speak about, the circumstances require ongoing monitoring of the economic conditions,” noted in the study.

Experts believe that the pressure on the ruble in the near future will increase, but that no drastic changes in the exchange rate will happen. “We expect that there will be increased pressure on the ruble in the near future from both the private sector and the state. At the same time, no sharp changes in the exchange rate will happen because the Bank of Russia will be able to meet the growing demand for the currency at the expense of the already tested exchange repo tool,” the Bank’s announcement read.

According to the researchers, the purchase of currency in the non-financial sector is unlikely to be reduced in the event the government changes or if the economic policy were to remain uncertainty. “At the same time non-resident investment in the coupon-bearing Federal Loan Bonds issued by the Russian government are likely to be reduced, especially in the event of the tightening of Western sanctions. A new formula of buying currency Ministry of Finance will lead to increased demand for it from the monetary authorities,” they say.

The forecast for 2018 is based on the premise the oil prices will stabilize in the range of USD50 to 60 per barrel. “In this case, it is necessary to prepare for a reduction in the trade surplus due to the stagnation of export and import growth, albeit sluggish against the backdrop of weak domestic demand. In the event of renewed growth in real incomes of the population, we expect an increase in payments to non-residents on current transfers. As a consequence, there will be a dramatic 1.5 to 2-fold reduction in the current account surplus, the study says.

At the same time, according to the researchers, a net capital outflow is expected to remain at the level comparable to that reported in 2016 and 2017. “This will contribute to the Bank of Russia’s further reduction of the key interest rate, even as the interest rates abroad will continue increasing.

The macroeconomic indicators show a deterioration in the economic situation at the end of 2017,” the research note stated.