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.
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