Vladimir Putin has warned that Russia could face up to two years of hard times before its embattled economy rebounds.

Speaking at his annual end of year press conference in Moscow, the Russian president pledged to push through long delayed reforms to reduce his country’s risky dependence on energy export earnings. “Life will force us to do this. There is simply no other possible way to function,” he said.

Mr Putin is facing the most serious crisis of his rule. The rouble tanked early this week and a massive interest rate hike has not helped raising questions about the Russian Central Bank’s ability to ensure financial stability.

Battered by low oil prices and western sanctions, the Russian economy is now heading into a recession that will make it difficult for the Kremlin to continue to deliver improved living standards that underpin Putin’s popularity.

It has become a tradition for Mr Putin to meet the press for a marathon question and answer session on the eve of the New Year holidays. But even for an experienced politician the event that lasted for more than three hours on Thursday must have presented a daunting challenge.

Many of the reporters frantically waving banners in the air to catch the president’s attention were seeking reassurance about the rouble and the broader economy.

Dressed in a black suit and a purple satin tie, Mr Putin appeared tense at first, but eventually relaxed reassuring the audience that Russia’s eventual recovery was “inevitable.”

But he failed to provide any concrete details of how to rescue the ruble or reform the economy that is dominated by huge natural resource groups controlled by his allies.

Instead he fell back on the frequent Kremlin refrain that Russia is besieged by the hostile west determined to undermine the country’s prosperity. Military spending that is set to rise by nearly one third to 3 trillion rubles next year will remain on track.

The rouble fell slightly as Putin spoke and, at 61.4 to the US dollar, was about 1.5 per cent lower on the day.

Mr Putin said Russia had sufficient hard currency reserves to ensure financial stability but cautioned that the central bank which has spent more than $80 billion this year propping up the rouble, should not burn through its $419 billion foreign exchange reserves.

Although he suggested that the central bank could have moved more quickly to stem the ruble’s decline, Mr Putin said he was confident that bank officials and the government were working “adequately” towards resolution of the problems.

Earlier this month Mr Putin declared an amnesty for capital held offshore in a move to encourage Russian businesses to repatriate their assets for the good of the domestic economy.

Asked to comment on on Thursday Mr Putin said he wanted to broaden the amnesty and legalize assets concealed in shell companies or parked with relatives in Russia. Businesses declaring their hidden wealth during the period of the amnesty would not risk reprisals.

“I want to warn all my colleagues, including those in the law enforcement agencies, that the harshest measures will be taken against those breaching the principles about which I am now speaking.”

Mr Putin said western sanctions imposed over the Ukraine crisis accounted for about 25 per cent to 30 per cent of the rouble’s problems.

But he rejected the suggestion by one reporter that Russia was paying the price for annexing Ukraine’s Crimea.

Instead he presented his decision to grab the strategic Black Sea peninsular as a bid to shore up Russian might in the face of the aggressive west. “Russia was paying for its genuine desire to preserve its civilization and statehood, “ he said.