Russian economic growth was nearly stagnant in the third quarter, according to a report from the state statistics agency released on Friday, as the repercussions of the Ukraine conflict and Western sanctions begin to take their toll.

Initially, increased military expenditure had bolstered the Russian economy for two years following the deployment of troops to Ukraine. However, this spending has also fueled inflation, which is now putting pressure on growth as the civilian sector grapples with elevated borrowing costs.

According to preliminary data from Rosstat, the gross domestic product (GDP) for the third quarter of 2025 was 100.6% compared to the same quarter in 2024. This reflects a significant decline from the previous quarter, when GDP grew by 1.1%.

This figure aligns with the Russian Central Bank’s revised annual estimate of economic growth, which is projected to be between 0.5% and 1%.

The central bank anticipates that persistent inflation, currently around 8%, will lead to sustained higher interest rates.

Businesses have expressed frustration over the steep borrowing costs, arguing that these are hindering growth and constraining the economy.

Moreover, these challenges have strained Russia’s public finances. The Kremlin is seeking to find financial resources from citizens and businesses to address an estimated budget deficit of about $50 billion for this year.

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

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

Recently, the United States implemented some of the most stringent sanctions against Russia’s energy sector, targeting its two largest oil companies, Rosneft and Lukoil, in an effort to compel Moscow to cease its military actions in Ukraine.