Russia’s economic growth slowed sharply in the third quarter of 2025, rising just 0.6% compared with the same period last year, according to preliminary data from the state statistics agency Rosstat. This is a sharp decline from the previous quarter, when GDP increased by 1.1%. The slowdown reflects the mounting costs of the war in Ukraine and the ongoing impact of Western sanctions. For the past two years, heavy military spending had temporarily supported the Russian economy. But it also fueled inflation, which now weighs on growth as the civilian sector struggles with high borrowing costs. “The gross domestic product in the third quarter of 2025 amounted to 100.6%, relative to the same period of 2024,” Rosstat said. This aligns with the Russian Central Bank’s revised annual forecast of 0.5% to 1% growth. Inflation remains stubbornly high at about 8%, prompting the central bank to keep interest rates elevated for longer. Businesses have repeatedly complained that high borrowing costs are restricting investment and slowing economic activity. The war and sanctions have also strained Russia’s public finances. The Kremlin faces a budget shortfall of around $50 billion so far this year and is seeking new revenue sources. The finance ministry has proposed raising the value-added tax from 20% to 22% next year to help close the gap. Lower oil prices have added further pressure, as energy exports account for nearly one-fifth of Russia’s budget revenues. U.S. sanctions last month targeted the country’s two largest oil producers, Rosneft and Lukoil, aiming to reduce Moscow’s war funding. Despite the economic strain, government officials have emphasized the importance of maintaining military spending while navigating the fiscal challenges posed by sanctions and lower energy revenues. Analysts warn that continued high inflation and borrowing costs may limit growth prospects for the remainder of 2025. The slowdown comes amid warnings that the Russian economy could face a deeper contraction if external pressures persist. The combination of war expenses, restricted access to international markets, and elevated domestic costs creates a challenging environment for businesses and households alike. While the Russian economy has shown resilience in certain areas, the overall picture remains fragile. Without relief from sanctions or a reduction in military spending, growth is likely to remain minimal, leaving policymakers to balance defense priorities with the need to stabilize the economy.