Russian President Vladimir Putin in his annual speech on Thursday defended the Kremlin's aggressive foreign policy, saying the actions are necessary for his country's survival.

Russia annexed Ukraine's Crimean peninsula in March and was later accused of supplying pro-Russian separatists in eastern Ukraine with ammunition and manpower.

Putin in his annual state-of-the-nation address at the Grand Kremlin Palace on Thursday defended the annexation of Crimea, describing the peninsula as Russia's spiritual ground, "our Temple Mount," and added that national pride and sovereignty are "a necessary condition for survival" of Russia.

"If for many European countries, sovereignty and national pride are forgotten concepts and a luxury, then for the Russian Federation a true sovereignty is an absolutely necessary condition of its existence," he told a full room of Cabinet ministers, lawmakers and community leaders. "I want to stress: either we will be sovereign, or we will dissolve in the world. And, of course, other nations must understand this as well."

More than 4,300 people have been killed in eastern Ukraine in what the West and the Ukrainian government says is a conflict fueled by Russian money.

Putin once again expressed his displeasure over the toppling of Ukrainian Presidential Viktor Yanukovych but offered no insight into what Russia's next actions in eastern Ukraine could be.

Although Russia is boosting its national defense budget Putin said it is not going to get involved in an expensive arms race. He said unspecified "unusual solutions" are at the nation's disposal.

"No one will succeed in defeating Russia militarily," he said. "They would have been delighted to let us go the way of Yugoslavia and the dismemberment of the Russian peoples, with all the tragic consequences. But it did not happen. We did not allow it to happen."

"The more we retreat and justify ourselves, the more brazen our opponents become and the more cynically and aggressively they behave."

The Russian president also announced measures to spur the flagging economy, saying that Russia's resurgent "geopolitical role" should be matched by a thriving economy.

Russia is expected to enter recession next year, for the first time in six years.

Putin suggested a three-year freeze on impromptu inspections and tax checks for companies with a clean record, and said there should be no taxation of offshore money returning to Russia.

Putin praised the work of the Central Bank, which moved to free float the ruble this year, allowing it to hit a record of almost 55 rubles to the dollar on Wednesday.

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Laura Mills contributed to this report.