According to preliminary figures published by Russia’s statistics service, the country’s economy contracted by 3.7% in 2015.
Retail sales plunged by 10% and capital investment fell by 8.4% in the economy’s worst performance since 2009.
In contrast, Russian GDP increased by 0.6% in 2014.
Russia’s economy has been hit hard by the extraordinary collapse in oil prices, which have fallen by 70% in the past 15 months.
Sanctions imposed by the West after Russia annexed Ukraine’s Crimea region in 2014 have also had an impact.
PM Dmitry Medvedev warned earlier this month that the fall could force Russia’s 2016 budget to be revised.
President Vladimir Putin said in December that the budget had been calculated based on oil at $50 a barrel. Oil is trading at just over $30 a barrel.
The state-controlled media blames the crisis, principally, on low oil prices and, to a lesser extent, on western sanctions.
In 15 years that Vladimir Putin has ruled Russia as president or prime minister, Russia failed to prepare for the possibility of low oil prices and did little to diversify its economy and reduce its reliance on energy exports.
Russian citizens are increasingly concerned. Inflation is rising, so is the fear of job losses. Meanwhile, real incomes in Russia are falling and social benefits are being cut.
Earlier this month senior citizens blocked streets in Sochi and Krasnodar to protest against the scrapping of free travel passes for pensioners. People power persuaded the local authorities to reverse the decision. The longer Russia’s economic woes continue, the greater the likelihood that social protest here will spread.
Taxes from oil and gas generate about half the Russian government’s revenue.
The ruble fell to record lows against the US dollar last week, before regaining some ground as oil prices recovered slightly.
The currency was down more than 1% on January 25 at 78.87 after oil prices fell about 3%.
Economy minister Alexei Ulyukayev said he expected the Russian central bank to leave interest rates on hold at 11%.
Elvira Nabiullina, the head of the central bank, said last week that authorities had “all the means” needed to keep the economy stable.
Unemployment in Russia was steady at 5.8% in December, meaning that 4.4 million people were out of work, and real wages fell by 10%.
Despite the gloomy economic news, McDonald’s said on January 25 it planned to open more than 60 restaurants in Russia in 2016.
Khamzat Khasbulatov, chief executive of McDonald’s Russia, said sanctions and the weak ruble had forced the fast food giant to make “serious adjustments” to its business model, but focusing on local suppliers and affordable menus had proved successful.
The Russian ruble has regained some ground from yesterday’s all-time low, although trading remains edgy and volatile.
The currency opened 4% lower on December 17, but then edged up. By early afternoon, one US dollar bought 68 rubles, far fewer than the record low of 79 on December 16.
The ruble has been hit by worries over the Russian economy, which has been affected by cheaper oil and sanctions.
Russia’s Finance Ministry said the currency was “undervalued” and that it was intervening in the market.
It also gave details of the amount it spent on such action, saying it had spent almost $2 billion on December 15 in an attempt to stop the ruble sliding.
Deputy finance minister Alexei Moiseyev said Russia was going to sell foreign currency from its treasury accounts “as much as necessary and as long as necessary”.
The drastic 6.5 percentage point rise in Russian interest rates to 17% early on December 16 failed to halt the slide in the currency.
The rate rise, which was meant to strengthen the ruble, helped it to hit 58 to the dollar early on Tuesday but the rate then collapsed to a record low of 79.
There is not much more Russia can do to prop up its currency, which has only been allowed to move in line with the world’s currency markets in the past year.
Capital controls, where money is restricted from moving out of the country, are the main, final option.
Russian PM Dmitry Medvedev ruled that out. Speaking at an emergency meeting of ministers and industry leaders, he said he was confident that Moscow could contain the crisis: “Central bank and the government have worked out a package of measures to stabilize the situation. What we are seeing today is mainly emotional games.
“It is in our interests to bring order to the markets, no one gains from instability. But at the same time, there is no need for tough regulations, as used to happen in the past. It does not bring anything good – we shall use market tools.”
The ruble has lost more than half its value against the dollar this year, hit by Western sanctions and the fall in the oil price which have both weakened the Russian economy.
Russia’s economy is expected to shrink next year, although the amount by which it does is closely linked to the price of oil, with the economy rising or falling in line with that.
Russia’s economy will fall into recession in 2015 as Western sanctions, in response to the country’s role in eastern Ukraine, and falling oil prices begin to bite, the Russian government has warned.
The country’s economic development ministry estimates the economy will contract by 0.8% next year.
It had previously estimated the economy would grow by 1.2% in 2015.
Russia’s reliance on tax revenues from the oil industry makes it particularly sensitive to price movements.
Household disposable incomes are also forecast to decline by as much as 2.8%, compared with a previous estimate that they would grow by 0.4%.
The sharp revision in Russia’s economic forecast is the first admission from the government that the economy will contract.
“The current prognosis is based on a drop in GDP by 0.8% in 2015, against the previous prognosis of growth by 1.2%,” deputy PM Alexi Vedev said.
On December 1, the rouble suffered its biggest one-day fall since 1998.
The currency slid almost 9% against the dollar before rallying after suspected central bank intervention. The currency has already lost 40% in value this year.
The Russian finance ministry has also not ruled out spending more than 500 billion roubles from the budget’s Reserve Fund next year.
The 2015-2017 budget allows for spending of up to 500 billion roubles next year from the Reserve Fund, but Maxim Oreshkin, head of the finance ministry’s long-term strategic planning department, said it was possible the government could spend more to support the economy.
Maxim Oreshkin added that if the average oil price were $80 per barrel in 2015, the finance ministry’s forecast for a fall in GDP was in line with the economy ministry’s prediction of a 0.8% contraction.
He also said that a scenario in which the oil price averaged $60 a barrel in 2015 was pessimistic, and at that price, the Russian economy would contract as forecast in the central bank’s “stress scenario”.
The bank published its stress scenario last month, saying that at $60 per barrel, GDP would decline by 3.5% to 4%.
The price of oil has fallen nearly 40% since the summer because of oversupply caused by rising US shale oil production.
Demand has also fallen, particularly in China, the world’s second largest consumer of the commodity, where industrial production has slowed in recent months.
The fall in the oil price has been causing concern for several members of the oil cartel, as most require a price above $80 a barrel to balance their government budgets and many need prices to be above $100 a barrel.