Stagnation Grips Russian Economy as War-related Expenses Mount Pressure

Russian economic growth remained nearly stagnant in the third quarter, according to the state statistics agency, as the repercussions of the Ukraine conflict and Western sanctions begin to take effect.

Initially, increased military expenditures bolstered the Russian economy for two years following the deployment of troops to Ukraine. However, this has also led to rising inflation, which is now hindering growth as the civilian sector faces high borrowing expenses.

According to preliminary estimates from the statistics agency Rosstat, «the gross domestic product (GDP) in the third quarter of 2025 was recorded at 100.6% compared to the same quarter of 2024.»

This figure is a notable decline from the prior quarter, where the GDP increased by 1.1%.

Nevertheless, it aligns with the revised annual forecast of the Russian Central Bank, which estimates growth between 0.5% and 1%.

The regulator also anticipates that persistent inflation, currently around 8%, will keep interest rates elevated for an extended period.

Businesses have expressed frustration over the high borrowing rates, claiming they are hindering economic growth and impairing overall economic performance.

This situation has strained Russia’s public finances, prompting the Kremlin to seek additional funding from citizens and businesses to address a budget deficit estimated at around $50 billion this year.

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

Additionally, declining oil prices have posed challenges for the budget, as fossil fuels account for nearly a fifth of budget revenues.

Last month, the United States announced some of the most severe sanctions on Russia’s energy sector to date, targeting its largest oil companies, Rosneft and Lukoil, in an effort to compel Moscow to cease its military activities in Ukraine.