High interest rates, falling profits: investment in Russian economy declines for first time in five years

Investment in the Russian economy fell by 3.1% year-on-year in the third quarter of 2025.

Source: The Moscow Times, an independent Amsterdam-based news outlet, citing data from Russia's Federal State Statistics Service

Details: The last time this happened was in the third quarter of 2020, when investment dropped by 5%.

Among the main reasons are record-high interest rates, a slowing economy and growing uncertainty due to the Russo-Ukrainian war.

Investment remains slightly positive for the first nine months, but the increase amounts to only 0.5%. At the end of September, Russia's Ministry of Economic Development predicted that investment would grow by 1.7% for the year and shrink by 0.5% next year – but the decline has come earlier.

At present, almost nothing supports growth in fixed-capital investment. The main source of investment is companies' own funds, yet their profits are falling: in January-September, they were 7.7% lower than a year earlier, and adjusted for inflation, the real drop is almost 15%.

The state, facing a record budget deficit (latest projection: 5.7% for the year, or 2.6% of GDP), is also cutting investment.

Loan rates remain "prohibitively high". Under such conditions it is more profitable for companies to keep money in deposits or buy government bonds than invest in production development.

Executives at Russian banks Sberbank and Rosselkhozbank acknowledge that businesses have effectively stopped submitting applications for new investment projects this year, and banks are funding only those already under way.

Background: The military-industrial complex, which has become the main driver of the Russian economy thanks to trillions in budget spending on state defence orders, has suddenly faltered.

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