Russian economy shrinks 2

Russia's economy shrank by two per cent in the first three months of this year, Russian Prime Minister Dmitry Medvedev has revealed. This represents the first contraction since 2009.

He acknowledged the increasing cost for its takeover of Crimea from Ukraine, which led the US and the European Union to levy sanctions against Russia.

Addressing lawmakers at the lower house of parliament in Moscow, he said he estimated that losses as a result of sanctions had reduced income from foreign exports by €25 billion (£18 billion), 1.5 per cent of gross domestic product, adding that the toll is set to grow this year.

“The unprecedented political and economic external pressure is the price for our position,” he said today (April 21st). “But everyone – authorities and our society – understood that we had no other way, whatever threats we may face."

"Russia can cope"

"The losses from the restrictions that have been imposed are significant, let’s not hide that,” Medvedev said. “There’s practically not a single sector of the economy that hasn’t been affected by some of the political measures, ranging from the financial sphere and limits on access to foreign credit to the import of technologies," he said.

However, he stressed the economic situation was not as bad as in 2009 and was stabilising, adding that Russia can cope.

"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," he said.

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.

These, along with declining oil prices, have hit the country hard, as the economy relies heavily on revenues from oil exports. 

Inflation is also soaring, hitting 16.7 per cent in February, with food prices jumping by 23 per cent compared to last year.

The Central Bank of Russia (CBR) expects the Russian economy to contract by between 3.5 per cent and four per cent in 2015.