After The Boom: The investment surge of the war years has resulted in an imbalance that depresses the civilian sector of the economy
Despite the war and widespread sanctions, 2022–2024 turned out to be a period of investment boom for the Russian economy. Average investment growth in 2021–2024 reached 8.4% per year, compared with less than 4% over the previous 15 years. However, investment growth began to slow at the end of 2024, and in the third quarter of 2025 investment recorded a slight decline for the first time since the Covid crisis. As a result, investment growth over the first three quarters of the year amounted to just 0.5%.
Over the past 20 years, the structure of investment financing for Russian companies has not undergone decisive change. The share of market-based resources, namely bank credit and loans, has averaged 16%, broadly the same as at the beginning of this period. As a result, the economy’s investment capacity is largely determined by the current financial position of firms and the scale of budgetary resources.
In 2014–2019, the share of budget funds in investment stood at 16.6%, rising to 19.5% in 2020–2023. In addition to direct budget operations, the economy also received a substantial inflow of quasi-budgetary funds and investment from the National Wealth Fund. According to the Ministry of Finance, the overall fiscal impulse amounted to 5% of GDP in 2020, around 4% in both 2022 and 2023, and about 3% in 2024. This cumulative impulse underpinned the investment boom, unexpectedly strong economic growth, and the economy’s rapid structural reorientation towards a war- and sanctions-based model.
However, the depletion of budget resources is leading to a rapid halt in aggregate investment growth and to a bifurcation of the economy into two sectors. While investment activity continues to expand in one, the other, predominantly civilian, is seeing widening areas of contraction and mounting signs of crisis.
Moreover, the investment boom of 2022–2024 was to a large extent directed not towards expanding the economy’s productive capacity, but towards structural reconfiguration, including militarisation, the redirection of exports, and the restructuring of value chains. Such a boom stimulates economic growth during the investment absorption phase, but does not create conditions for sustaining growth or expanding output in the civilian sector. As a side effect, it generates macroeconomic imbalances, squeezing the economy between high inflation and high interest rates, and depressing the civilian sector at the subsequent stage.
The end of the investment boom
The military-driven investment boom began in the second quarter of 2023 and started to fade from the third quarter of 2024. In early 2025, investment still showed robust growth of 8.7% in real terms compared with the first quarter of the previous year, most likely due to contributions under long-term investment programmes. In the first quarter of 2024, growth had reached as much as 14.8%. However, by the second quarter of 2025 the growth rate had slowed to 1.5%, and in the third quarter the volume of investment declined year-on-year for the first time since the Covid downturn (Rosstat data). As a result, in January–September 2025 investment was only 0.5% higher in real terms than a year earlier, whereas over the same period in 2024 growth had been almost 9%.
Chart 1. Quarterly investment growth rates, 2022–2025, 100% = 0
Experts from the Centre for Macroeconomic Analysis and Short-Term Forecasting (CMASF) argue in their December review that the investment sector is experiencing an ‘open’ crisis. According to their estimates, on a quarter-on-quarter, seasonally adjusted basis, investment increased by 2.9% in the first quarter of 2025 compared with the previous period, then fell by 3.7% in the second quarter and by a further 1.7% in the third. The supply of investment goods, the part of the investment sector that directly determines future output growth, continues to decline rapidly. In September 2025 it fell by 1.6% compared with August, in October by 1.9% compared with September, and stood at only 85% of the average monthly level of 2024.
In April 2025, the Ministry of Economic Development forecast a slowdown in annual investment growth to 1.7%, or even to 0.8% under a conservative scenario, attributing this to the 'high base' of previous years and tight monetary conditions. In its September forecast, only the baseline scenario remained, with growth of 1.7%, which now appears unrealistic. A sharp fall in budget revenues at the end of the year points to a deep downturn in the export sector, the government is making strenuous efforts to restrain budget spending, and more than two thirds of industrial sectors are cutting output (→ Re:Russia: Military Post-Keynesianism). In these circumstances, a return of investment to growth by the end of the year should not be expected. The Institute of Economic Forecasting of the Russian Academy of Sciences offers more moderate estimates of the decline in investment in the second and third quarters than CMASF, but its December forecast also points to a further contraction at the start of the fourth quarter. A downturn in housing construction, declining hydrocarbon extraction, and the abandonment of new investment projects are exerting negative pressure on the sector. Output of construction materials, metals, and civilian machinery and equipment is also falling.
By sector, the halt in investment growth appears as follows. The extractive sector has moved from growth of 15% in 2024 to stagnation. Noticeable growth is observed only in the extraction of metal ores, but this is offset by a sharp contraction in the coal industry, where investment has fallen by almost 25% compared with 2022. In manufacturing, the investment boom continues. It still covers a large part of the defence sector, especially drone production, where output has increased by a factor of 2.4, as well as the chemical industry. It also extends to food processing, oil refining, and metallurgy. At the same time, investment is declining in some consumer and capital goods industries, including clothing and furniture, electrical equipment, computers, and electronic equipment. The main drag on overall figures, however, comes from a dramatic fall in investment in construction at 18%, transport and storage at 29%, and a less dramatic but still significant decline in information and communications at 5%.
Table 1. Investment dynamics, January–September of the respective year compared to the same period of the previous year, 2022–2025, %
The effects of this shift in investment policy towards military industries are already visible in industrial output trends. In 2025, the industrial sector underwent a 'split' into two segments: a rapidly growing but narrowing segment of industries linked to military and quasi-military production, and a civilian segment that has entered a phase of decline (→ Re:Russia: Military Post-Keynesianism). Although the aggregate outcome for industrial production was marginally positive, according to the latest available data from Rosstat for January to November 2025, with growth of 0.8%, this in fact reflected two opposing trajectories. One sector recorded abnormally high growth rates, while the other showed mounting signs of crisis.
Fiscal stimulus: where did the investments come from and where did they go?
Over the past twenty years, the average annual growth rate of fixed capital investment in the Russian economy has been 5.3% in real terms, according to Rosstat. However, this seemingly solid performance largely reflects the contribution of the investment boom of the 2000s. In 2005 to 2008, investment growth exceeded 15% per year. Over the past fifteen years, by contrast, the average growth rate has fallen to 3.4%. The crisis of 2008 and 2009 was followed by a rebound, with average growth of 8% in 2010 to 2012. After the depression of 2014 to 2016, when investment declined by 4% per year amid low oil prices, there was only a moderate recovery in 2017 to 2019, at 4.1% per year. The current surge in investment activity, strictly speaking, began immediately after the Covid pause. As early as 2021, the average growth rate over four years reached 8.4%, and over the past two years it has been 9.1%. Cumulative investment growth in 2021 to 2024 amounted to almost 38%, which is nonetheless only half of the increase recorded in 2005 to 2008.
Chart 2. Investment dynamics and structure, 2006–2024, 100% = 2005
Borrowed funds, namely bank credit and loans from other organisations, play a relatively limited role in the investment activity of Russian companies. Over a twenty-year period, they accounted on average for 16.3% of total investment, and although their share fluctuated between 14.5% and 18%, there was virtually no underlying trend. Budgetary funds provided an average of 18.6% of total investment, but here three distinct periods can be identified. In 2006 to 2013, the budget accounted for around 20% of investment. The spectacular rise in oil prices flooded the budget with revenues and enabled high levels of spending. In 2014 to 2019, the budget share declined to 16.6%, before rising again to 19.4% during the Covid and wartime period of 2020 to 2023. This pronounced swing reflected the new role assumed by the state in the economy, as it significantly expanded its fiscal leverage.
Throughout the entire twenty-year period, however, the main source of investment remained companies’ own funds. On average, they financed 48% of investment, rising to around 55% in recent years, from 2018 to 2024, according to Rosstat estimates.
Accordingly, investment dynamics were most strongly influenced by the financial position of firms themselves. Higher profits enabled higher investment, while crises led to contraction, as in 2009, 2014 to 2015, and 2020. Periods of especially strong investment coincided with phases in which solid corporate financial results were reinforced by rising budgetary investment. This was the case in 2005–2008 and 2010–2012, and to a large extent also during the most recent investment boom of 2021–2024
An analysis of the structure of investment by funding source shows that high growth rates in 2021 were driven by increased investment from companies’ own funds, as firms experienced a post-Covid rebound and responded to pent-up demand following lockdowns, as well as by an expansion of bank lending and higher budgetary inflows. In 2022, by contrast, a sharp deterioration in corporate financial results and profits caused by the breakdown of economic ties with the West was offset by rising budgetary investment, whose share increased to 20.5% from 18.3% in 2021, and by loans from third-party organisations, largely state corporations and state-owned companies.
In 2023, corporate financial results rose by as much as 35%. According to economists, this increase was mainly driven by two factors. First, a powerful fiscal impulse, whose annual scale was estimated by the Ministry of Finance at about 4% of GDP in both , and which had a particularly strong impact on industry and the IT sector. Second, a positive foreign exchange revaluation effect in the financial sector. In 2024, corporate financial results declined, while the fiscal impulse fell to around 3% of GDP. A noticeable reduction in the share of budgetary funds in investment immediately affected the pace of investment growth (as shown in Table 2 and Chart 1).
Over the first three quarters of 2025, the contraction of the budgetary component continued. Whereas in 2022 to 2023 the budget provided 17.5% of investment resources, in 2025 this figure fell to 12.9%.
The Ministry of Finance estimates the fiscal impulse in 2025 at 2% of GDP. As a result, the share of external funds in investment dropped below 40%, while more than 60% was financed from companies’ own resources. At the same time, according to Rosstat, corporate financial results in October 2025 were 25% below their nominal peak of 2023. This is notable given the sharp rise in prices across the economy, which should have led to nominal growth, as consumer inflation in October 2025 compared with October 2023 was almost 17%. In other words, the surge recorded in 2023 was effectively eroded. As a result, investment growth has effectively come to a halt, with bank credit playing more of a stabilising role, and its share in investment even increasing.
Table 2. Structure of investment by source of financing, January–September, 2022–2025, %
Thus, it was the fiscal impulse that played the key role in the investment boom of 2021 to 2024. In 2020 it amounted to 5% of GDP, triggering a powerful surge in investment in 2021. Beyond direct budgetary operations and credit, its scale was also determined by the investment of resources from the National Wealth Fund. In March 2020, of the fund’s total assets of 12.9 trillion roubles, 1.8 trillion were allocated to 'other permitted assets'. By February 2022, out of the same 12.9 trillion roubles, allocations had risen to 3.2 trillion, meaning that more than 1.4 trillion roubles were invested during the Covid period. By the end of 2022, the volume of such placements had increased to 4.3 trillion roubles, by the end of 2023 to 6.95 trillion, the largest annual increase, and by the end of 2025 to 9.3 trillion roubles (according to data from the Ministry of Finance). At the same time, in the second half of last year the volume of liquid assets in the National Wealth Fund remained almost unchanged. The remaining 4 trillion roubles were treated by the authorities as a 'safety cushion', while the government moved to restrain budget spending.
Chart 3. Allocation of National Wealth Fund resources to other assets, 2020–2025, billion roubles
What comes next: boom versus growth
The investment boom has run its course. Investment in the fourth quarter will still reflect economic conditions in mid-2025 and in the third quarter of that year, while the accumulation of crisis effects, falling export revenues, and tighter control over budget spending are more likely to become fully apparent in the first and second quarters of this year. The September forecast by the Ministry of Economic Development indicates that, due to the persistently high interest rate, investment is expected to decline as early as 2026 by between 0.5% under the baseline scenario and 1.3% under the conservative one. In the April version of the forecast, by contrast, investment growth of 3% had still been assumed.
Surveys conducted by the Central Bank show that corporate assessments of investment activity have fallen from a range of 8 to 9 points between the second quarter of 2023 and the second quarter of 2024 to just 2 to 3 points in 2025. This is below, for example, the range observed in the 'normal' years of 2018 to 2019, when assessments stood at 3.2 to 5.5 points and investment growth was close to its long-term average of 3.8% per year. It is also notable that survey assessments for manufacturing are worse than the economy-wide average, even though investment statistics for manufacturing are significantly stronger than average. This suggests that the continuing investment boom in manufacturing is concentrated in a narrow group of large firms and specific subsectors, while medium-sized enterprises are facing an acute shortage of investment.
Chart 4. Index of changes in assessments of current investment activity of enterprises, 2019–2025
Russian officials like to speak of a 'high base'. Rapid investment growth in previous years has created a cushion, and a pause in that growth therefore does not appear dramatic. Russian business, by contrast, is registering an 'investment pause' and sounding the alarm. At a forum of the Financial University entitled ‘Russia: Image of the Future’, the head of the Russian Union of Industrialists and Entrepreneurs, Alexander Shokhin, warned that stagnation and a likely decline in investment, driven by the simultaneous impact of a high key interest rate, rouble appreciation, a shrinking fiscal stimulus, and rising taxes, could lead to Russian producers being squeezed out of the market. Faced with a shortage of funds, they would cede entire market niches to Chinese suppliers of equipment and finished goods, as well as to other competitors from so-called friendly countries. These concerns are far from unfounded.
Macrofinancial policy in the third quarter of 2025 became entirely disincentivising, CMASF analysts echo Shokhin. It combines a negative fiscal impulse, with net revenue extraction from the economy through fiscal channels, and a high interest rate. By the end of last year, the Russian economy had settled into a 'strong effective exchange rate and high real interest rate' paradigm (→ Re:Russia: Victim of Disinflation, Sanctions and the ‘Chinafication’ of Trade). This configuration is very effective at suppressing inflation, but it discourages investment from both internal funds, as it is more attractive to place money on deposit at a high rate, and borrowed funds, and also dampens current operating activity. If one adds to this the sharp fall in export sector revenues and the need for fiscal consolidation, a recession that was avoided in the first half of last year now looks almost inevitable.
The government, however, has few tools at its disposal to remedy the situation. The history of the investment boom of 2021 to 2024 reveals fundamental weaknesses in the Russian economy. Once the impulse from public finances is exhausted, investment growth fades, and alternative instruments to support investment activity are virtually absent. Moreover, the fiscal stimulus of recent years has worsened the situation by locking the economy into a hard choice between high inflation and a high interest rate.
This is not the end of the bad news. The investment boom of 2022 to 2024 was channelled less into expanding the economy’s productive capacity than into structural reconfiguration. This included the creation of parallel transport and logistics infrastructure to reorient foreign trade (→ Re: Russia: Perestroika Again), the restructuring of supply chains, the expansion of the military-industrial sector, and, to a limited extent, import substitution. Neither the first nor the second use of these investments provides a foundation for sustainable output growth. Meanwhile, the limited successes of the third, as Shokhin rightly notes, can easily be reversed in an environment where the fiscal impulse has run out and credit has become more expensive. In other words, such an investment boom stimulates economic growth at the stage of investment absorption, but does not create conditions for sustaining growth or expanding output in the civilian sector. As a side effect, it generates macroeconomic imbalances that depress this sector in the subsequent period.