Vladimir Putin in Russia via video link in the Moscow Kremlin on March 30, 2023. Credit: GAVRIIL GRIGOROV / SPUTNIK / AFP via Getty Images

Russian President Vladimir Putin has acknowledged that Western sanctions designed to deprive the Kremlin of the funds needed to invade Ukraine could deal a heavy blow to the Russian economy.

“The illegal restrictions imposed on the Russian economy may have a negative impact on it in the medium term,” Putin said in televised remarks on Wednesday, according to what was reported by the state news agency TASS.

It’s a strange admission from the Russian leader, who has repeatedly insisted that the Russian economy is resilient and that sanctions have hurt Western countries by increasing inflation and energy prices.

Putin said the Russian economy has grown since July, thanks in part to strong ties with “eastern and southern countries,” likely referring to China and some African countries. He also stressed the importance of domestic demand for the economy, saying it would become the main driver of growth.

The Russian economy has shown surprising resilience in the face of unprecedented sanctions imposed by the West, including an EU ban on most imports of petroleum products. Preliminary estimates from the Russian government show that economic output shrank by 2.1% last year, a more limited contraction than many economists initially expected.

However, while China has given the Kremlin an economic lifeline by buying up Russian energy and offering an alternative to the US dollar, cracks are beginning to appear.

Russian government revenue fell 35% in January compared to a year earlier, while spending rose 59%, leaving a budget deficit of about 1.761 billion rubles ($23.3 billion).

The World Bank and the Organization for Economic Co-operation and Development projected contractions of 3.3% and 5.6%, respectively, in 2023. The International Monetary Fund estimates that Russia’s growth will remain stable this year, but that the economy will contract by at least 7 percent. % in the medium term.

In response to Russia’s aggression against Ukraine, Western countries have announced more than 11,300 sanctions since the invasion in February 2022 and have frozen some $300 billion in Russia’s foreign reserves.

Russia’s oligarch, Oleg Deripaska, said earlier this month that Russia could find itself out of money next year.

Rob North and Levi Doherty contributed to this report.