Stagnant Growth Marks Russias Economy Amid Ongoing War and Sanctions Pressures

The state statistics agency reported on Friday that Russia’s economic growth was nearly stagnant in the third quarter, as the repercussions of the Ukraine conflict and Western sanctions begin to take effect.

Initially, substantial military expenditures bolstered the Russian economy for two years following the deployment of troops to Ukraine. However, this also led to inflation, which is now hindering growth and posing challenges for the civilian sector facing elevated borrowing costs.

According to preliminary estimates from Rosstat, «the gross domestic product (GDP) in the third quarter of 2025 was 100.6% compared to the same period in 2024.» This figure marks a significant decline from the previous quarter, where GDP experienced a growth of 1.1%.

Nonetheless, this aligns with the Russian Central Bank’s revised annual projection of growth between 0.5% and 1%.

The authority anticipates that persistently high inflation, currently around 8%, will result in sustained high-interest rates for an extended period.

Business leaders have expressed frustration over the significant borrowing costs, arguing that these expenses are impeding growth and restraining economic progress.

Furthermore, this situation has strained Russia’s public finances. The Kremlin is seeking to extract funds from citizens and businesses to address a budget deficit estimated at around $50 billion this year.

In response, the finance ministry has suggested increasing the value-added tax (VAT) from 20% to 22% next year.

Additionally, the decline in oil prices has created further challenges for the budget, as fossil fuels account for nearly 20% of budget revenues.

Last month, the United States introduced some of the toughest sanctions against Russia’s energy sector to date, targeting its two largest oil companies, Rosneft and Lukoil, in an effort to pressure Moscow to cease its military actions in Ukraine.