The investment crisis has taken an open form.
All key risks for the development of the Russian economy have materialized in 2024–2025, writes the Institute of National Economic Forecasting of the Russian Academy of Sciences (INEP) in the preamble to its updated forecast. Due to unfavorable trends in demographics, the labor market is experiencing a worsening shortage, technological lag behind developed countries and China is increasing, revenues from hydrocarbon exports and raw material rent are declining, defense burdens are rising, and sanctions pressure is intensifying, experts from INEP list.
In this situation, balancing the budget can only be achieved by limiting its expenditures, which, combined with a high key interest rate, "predetermines the deterioration of the economic situation in 2026," write INEP experts.
The period of "managed cooling" of the economy, in their opinion, has ended. From January to September, stagnation was observed, and by September, growth had slowed to zero year-on-year. The assessment of monthly GDP dynamics, excluding seasonality, shows a halt in economic growth since November 2024, write INEP experts. They currently consider the acceleration at the beginning of the fourth quarter to be a one-time factor rather than a change in the overall trend. For example, the acceleration of consumer demand is a reaction to the announced increase in VAT and the advancement of part of future consumption.
The structure of economic growth has significantly narrowed. While in 2024, manufacturing, the financial sector, and public administration accounted for 60% of GDP growth, in the first half of the year, it was 130%, INEP calculated. This means that the others are declining. In industry, only production related to the defense industry is growing, writes INEP, while the output of durable consumer goods and investment goods is steadily decreasing.
The decline in investments is causing particular concern for INEP. In the second quarter, they decreased by 1.7% compared to the previous quarter, excluding seasonality, and in the third quarter, by 1.4%, with indirect indicators suggesting that this trend will continue. The output of construction materials, metals, and civil engineering products is decreasing, INEP lists. In residential construction, there is a decline, as companies abandon new investment projects due to high interest rates.
High rates are consuming the main investment resource — companies' own funds. Their profits from January to September decreased by 15.6% in real terms, and the ratio of interest payments to profits approached 60% for the economy as a whole, INEP calculated, with debt burdens significantly increasing across all sectors. Real lending to the economy has decreased by 12.8% this year, and budget investments have decreased by 11.1%.
In the third quarter, Rosstat recorded a real decline in investments for the first time since 2022 — by 3.1% year-on-year. The decline was observed in the two largest areas of capital expenditures: infrastructure (-1%) and "machines and equipment" (-15%), analysts from Promsvyazbank note. This indicates a cessation of growth in economic potential, and if the trend solidifies, it will lead to its contraction.
The Ministry of Economic Development forecasts a 0.5% reduction in investments next year.
The investment crisis has taken an open form, notes Dmitry Belousov from the analytical center CMAC, who calls the situation an "investment failure." Investment activity continues to decline, with the supply of investment goods in September being 10.7% lower than the average monthly level of 2024 and only 6% higher than the anti-record of the last five years set in the second quarter of 2022.
Investments in fixed capital will be one of the key factors restraining economic growth in 2025–2028, notes INEP. Its updated forecast predicts GDP growth of only 0.7% this year, 1.4% next year, with acceleration to 2% in 2027.
The Ministry of Economic Development predicts growth of 1.3% next year, also with acceleration to 2.5-2.8% in 2027–2028. However, few share the government's optimism. The IMF and the World Bank predict several years of stagnation for Russia, with annual growth rates of around 1%. The consensus among analysts surveyed by the Central Bank suggests growth of 0.9% this year, 1.1% next year, and 1.7-1.8% in the following two years.
"In the logic of the economic crisis, a decline in investment activity will lead to an even greater reduction in output, followed by a decrease in employment and consumer demand, and an increase in overdue debts for households and businesses. In the worst-case scenario — a payment crisis," concludes INEP.
