Russia economy war Ukraine sanctions oil energy Kremlin Putin - REUTERS/Shamil Zhumatov

Russia's economy has plunged into its worst crisis for almost three decades as the country is battered by Western sanctions, a leaked copy of the Kremlin's own forecasts shows.

The Russian finance ministry is predicting a 12pc collapse in GDP this year, the biggest contraction since 1994 when it was shifting towards capitalism under Boris Yeltsin, the first post-Soviet president.

A collapse would wipe out around a decade of economic growth.

The leak will pile pressure on Vladimir Putin, who on Monday presided over a scaled-down version of Russia's annual Victory Day parade marking the end of the Second World War in Europe.

Russia has been hammered by heavy sanctions following the invasion of Ukraine, which are about to be ratcheted up further as Brussels discusses a ban on oil from the country.

It has left the Kremlin teetering on the edge of a default after it last week narrowly avoided a failure to pay foreign debts for the first time since the Bolshevik revolution a century ago.

The Kremlin has yet to issue a public economic outlook, but the finance ministry's figures - seen by Bloomberg - are more pessimistic than the central bank's forecasts of a contraction between 8pc and 10pc this year.

The International Monetary Fund expects an 8.5pc decline. The dire figures emerged as Mr Putin appeared at a Victory Day parade in Moscow.

The president did not use a speech to formally declare war against Ukraine or announce a larger-scale mobilisation, continuing to refer to the conflict as a "special operation".

Krishna Guha, an analyst at Evercore, said Mr Putin "is wary of risking domestic support for the war through mass conscription".

Meanwhile, European officials are locked in talks over how to press ahead with a mooted buying ban on Russian oil and gas.

The European Commission is reportedly mulling offering more money to landlocked eastern European countries to build support for a ban, which is facing stiff opposition from Hungary.

Britain and the US have already vowed to ditch Russian oil, and European countries are also seeking to wean themselves off gas supplies from Moscow. Russia's central bank has repeatedly slashed interest rates in recent weeks after raising them at the onset of conflict.

The cuts, aimed at driving spending, came despite a surge in inflation to 17.7pc.

Speaking in late April, governor Elvira Nabiullina warned of a severe recession, soaring prices and severe disruption to Russia's labour market. She said the Russian economy would likely then remain stagnant in 2023.

Official figures showed Russia's economy grew by 3.7pc in the first quarter, but Ms Nabiullina said this was a temporary boost driven by people stocking up on the goods.

Russia's economy shrank by 3pc during 2020, the first year of the pandemic, and 7.8pc in 2009 amid the global financial crisis. Business surveys suggest activity is continuing to contract as sanctions cause demand to dry up.

Bosses are increasingly pessimistic about the conditions they face as they whittle down work backlogs amid falling orders.

Companies are firing staff and trying to cut costs as they grapple with soaring cost inflation, according to the latest purchasing managers' index data from S&P Global.

Several of the world's biggest shipping companies are boycotting Russia, piling further inflationary and supply pressure on the country.

Survey data tracked by Goldman Sachs suggests Russian economic activity is stabilising at about 10pc below pre-invasion levels.

"Overall, mid-term developments will depend on how effectively Russia can substitute imports and redirect (energy) exports," said analyst Clemens Grafe.