Russia’s economy contracted 2 per cent last quarter, prime minister Dmitry Medvedev said, saying the country faced unprecedented challenges from a plunge in oil prices and sanctions imposed over Ukraine.

The downturn was “most acute” at end-2014 and the start of this year, Mr Medvedev told lawmakers in Moscow. The decline in gross domestic product is the first since a contraction in 2009.

The economy of the world’s largest energy exporter is entering a recession after an almost 50 per cent crash in oil prices and the ruble’s worst crisis since 1998. Sanctions imposed by the US and the European Union over the conflict in Ukraine cut off access to international markets and stoked capital outflows, forcing authorities to respond with spending cutbacks and an emergency increase in the benchmark interest rate in December.

The economy is gradually adjusting to a floating exchange rate and the budget deficit remains at a safe level, Medvedev said. While the situation is stabilising, Mr Medvedev warned against having any “illusions.”

Bloomberg