Russia's Economic Growth Stalls Amid Escalating War Expenses
Moscow, Sunday, 16 November 2025.
Russia’s economy is experiencing a significant slowdown due to increased military spending and Western sanctions, impacting consumer welfare and global markets, especially in the energy sector.
Economic Slowdown and Military Spending
Russia’s economy has experienced a marked slowdown, reported by Rosstat, with growth close to zero in the third quarter of 2025. The increased military spending and the enduring impact of Western sanctions are significant contributors to this economic stagnation. Previously, the economy had shown resilience, partly due to military spending, but the benefits have dwindled as inflationary pressures and high interest rates began to weigh on growth [2][3].
Impact on Consumer Welfare and Government Strategy
The Kremlin’s strategy to counteract the economic slowdown involves increasing taxes and fees rather than borrowing, which could exacerbate inflation. The Russian government has proposed to raise the VAT from 20% to 22% next year. This approach aims to plug a budget gap currently estimated at around $50 billion. However, this shift is likely to strain consumer finances further, as higher taxes may lead to increased prices [1][2].
Inflation and Interest Rates
Inflation in Russia remains a critical issue, with October 2025 seeing a slight decrease to 7.7% from 8% in September. This marginal reduction does little to alleviate the high borrowing costs that have created obstacles for businesses. The Central Bank of Russia anticipates maintaining high interest rates to combat persistent inflation, despite the slowdown in economic growth [3][4].
Global Market Implications
Russia’s economic challenges have reverberated through global markets, particularly affecting the energy sector. The recent U.S. sanctions on major Russian oil producers, Rosneft and Lukoil, compound the situation for the Russian economy. These sanctions are part of broader efforts to pressure Russia into reconsidering its military actions in Ukraine. The energy sector, a significant revenue source for Russia, faces increased uncertainties, potentially influencing global oil prices and market stability [2][5].