Russian Prime Minister Dmitry Medvedev said Russia’s economy shrank by 2% in the first three months of this year, the first contraction since 2009.
He attributed the shrinkage to the pressure of sanctions and the weak oil price. But, addressing MPs, he said the economic situation was not as bad as in 2009 and was stabilising.
He said Russia faced “a new reality”.
He said the heaviest pressure had come from “the main political decision last year – the return of Crimea to Russia”.
Western sanctions were imposed after Russia annexed Ukraine’s Crimea region in March 2014, and they have been escalated during the fighting in eastern Ukraine, where Moscow is backing separatist forces.
He compared the significance to Russia of the return of Crimea to “the reunification of Germany or the return to China of Hong Kong and Macao”.
Mr Medvedev said sanctions resulting from this were causing significant economic problems.
He estimated that losses as a result of sanctions had dented income from some foreign exports by €25bn (£18bn; $26.7bn), 1.5% of gross domestic product, a figure he said could “increase several times” this year.
Last year, the rouble collapsed in value, causing import prices to shoot up and exports income to shrink. The situation was heightened by a deep fall in the price of oil, on which the Russian economy is highly dependent.
The country’s central bank has predicted the economy could shrink by up to 4% this year if oil stays at about $50 a barrel.
But Mr Medvedev said Russia could cope, even if economic conditions deteriorated further: “If external pressure intensifies, and oil prices remain at an extremely low level for a long time, we will have to develop in a new economic reality.
“I am convinced that we will be able to live even in such a reality. The experience of the recent period has shown that we have learnt how to do this.”