Russia's economy slowed sharply in the first three months of 2014 as the Ukraine crisis slammed business confidence and investment.

Official Russian statistics showed gross domestic product grew by an annual rate of 0.9% in the first quarter. That compares with growth of 2% in the final quarter last year.

Russia's economy has suffered due to rising military and political tensions with Ukraine, which have hurt its relationships with Western nations. Investors have pulled billions of dollars out of the country, hitting the ruble and pushing up inflation.

The central bank has responded by raising interest rates twice, squeezing businesses and households.

The European Union and U.S. have issued sanctions against high-ranking Russian individuals and some companies as they look to punish Moscow for annexing Ukraine's Crimea region and encouraging separatist sentiment in eastern regions of Ukraine.

They've warned of tougher actions to come if Russia interferes with Ukrainian elections on May 25.

Related: 3 risks from the Ukraine crisis

The International Monetary Fund recently raised red flags about Russia's economy, slashing its outlook for growth to 0.2% for 2014. It specifically blamed the Ukraine crisis for its latest downgrade.

"Investment will further contract due to the uncertainty around the geopolitical situation," said the IMF. "While still strong, the pace of consumption growth—supported by wage and credit growth—has begun to slow."

The Russian ruble and stock markets have taken a big hit over the Ukraine crisis. Russia's benchmark Micex index is off by 7% so far this year. At one point in mid-March, it had fallen by as much as 21%.

In late April, Standard & Poor's cut Russia's credit rating to one notch above junk, citing a flight of capital from the country.