Background on the Situation
Russia’s economic growth was nearly nonexistent in the third quarter of 2025, as reported by Russia’s state statistics agency on Friday. This sluggish performance is primarily attributed to the financial burdens of the ongoing war in Ukraine and the crippling Western sanctions.
Initial Economic Boost from Military Spending
Initially, the substantial military expenditure spurred Russia’s economy during the first two years of its Ukraine invasion, which began in 2022. However, this same spending has now fueled inflation, which in turn is hindering growth by making borrowing costs exorbitant.
GDP Growth and Inflation
According to Rosstat, Russia’s GDP grew by a mere 0.6% in the third quarter of 2025 compared to the same period last year.
This figure is considerably lower than the previous quarter, during which the GDP grew by 1.1% compared to the year prior.
The growth rate aligns with the Russian Central Bank’s downwardly revised projections, ranging from 0.5% to 1% for the entirety of 2025.
High Interest Rates and Business Complaints
The Central Bank anticipates that the inflation rate, currently hovering around 8%, will keep interest rates elevated for an extended period. This situation has led to complaints from Russian businesses regarding the high cost of borrowing, which in turn is stifling investments and weakening the economy.
Additional Economic Challenges
Further complicating matters, the decline in oil prices poses another headache for the Russian government. Despite numerous sanctions, Russia’s hydrocarbon exports remain a significant source of state revenue.
In October, the United States sanctioned two major Russian oil producers, Rosneft and Lukoil, in an attempt to compel Moscow to end the war in Ukraine.
Key Questions and Answers
- What caused Russia’s economic growth to stagnate in Q3 2025? The primary factors were the financial burdens of the war in Ukraine and Western sanctions, which led to increased inflation and high borrowing costs.
- How did military spending initially impact Russia’s economy? In the early stages of the Ukraine invasion, substantial military expenditure spurred Russia’s economy.
- What is the current inflation rate in Russia, and how does it affect the economy? The inflation rate is around 8%, leading to elevated interest rates that discourage investments and hamper economic growth.
- Which US sanctions were imposed on Russian oil producers in October 2025? The United States sanctioned Rosneft and Lukoil, two major Russian oil producers, to pressure Moscow into ending the war in Ukraine.
