Looking closely at the annual GDP chart of Russia, it is clearly that annual GDP in 2014 began

with slowing growth, and then in 2015, the annual GDP dropped down to negative, so what is
the cause of this massive decline? According to the agency's calculations, the annual negative
effect caused by sanctions on Russia's GDP growth in the period of 2014-2018 is 0.2 percentage
points. As for the main reason, which is cheaper oil, the GDP growth rate decreases on average
by 0.65 percentage points per year. IMF (international Monetary Fund) also analyzed, the
tightening of budget policy and monetary policy, respectively "contributed" 0.1 percentage
point and 0.2 percentage point to the deceleration of Russian GDP. Together, these four factors
have subtracted nearly 1.2 percentage points from the annual growth rate of the Russian
economy. At the same time, Bloomberg experts at the end of 2018 calculated that, due to
sanctions and a number of other factors (such as structural changes in the economy and
slowing global growth), GDP of Russia has dropped 6% of its growth rate since 2014.
During the 15 years under the leadership of President Vladimir Putin, Russia successfully
reduced its poverty rate to 11% in 2014. However, this trend has been reversed. Currently up to
16% of Russians live in poverty. Western embargo and plunging oil prices have pushed Russia
into economic recession in recent years. Since the beginning of 2015, Russia's inflation rate has
skyrocketed to 16%.That means the prices of Russian goods and services become much more
expensive than they were a year ago, making people's lives increasingly difficult. The Russians
were forced to tighten their belts and reduce spending. Retail sales of goods and services in
Russia fell 9.4% in June after falling continuously in all months since the beginning of the year.

Russia in 2013 had already seen its high level of capital flight, a recurring problem for the
country, reach about 61 billion USD .In early December, the central bank estimated that capital
flight would amount to $128 billion but it was pushed higher by the ruble's steep plunge at the
end of the year on the back of falling oil prices and growing panic as people rushed to exchange
their savings. Just in the fourth quarter of 2014, capital outflows amounted to $72.9 billion,
compared to $16.9 billion in the same period a year earlier.The central bank said that the figure
was augmented by foreign currency loans given to banks for the first time to help them
withstand the ruble's fall. Russia's current account surplus, the broadest measure of the
country's trade with the rest of the world, reached $56.7 billion in 2014, up from $34.1 billion in
2013.

Sollutions:

So what did Russian do to recover their economy after the crisis? It is known that Crimea has been part
of Russia since the 18th century, but then became a territory of Ukraine in 1954. After the coup in Kiev
in 2014, people living here held a historic referendum with the result that the vast majority of the
people supported the return to part of Russia and from that time until now, The Foreign Ministry
spokeswoman of Russia Maria Zakharova insisted that Russia would not return Crimea to Ukraine. Also
the Russian government has used a lot of macroeconomic measures to resolve the stressful situation of
the domestic economy. Russian President Putin also once confirmed that the drop in the ruble rate will
only affect the economy of this country "to some extent". On October the 3 rd, after months of
fluctuating ruble, Russia spent 980 million USD to stop the decline, this is part of a plan to spend 30
billion USD on market intervention in October. President Putin had made sure that Russia will not "burn"
its foreign exchange reserves to boost the ruble (24/10). Russia raised its interest rate stronger than
their forecast on October 31, but this might not soothe fears that sanctions and capital flight will
damage the economy. Russian central bank removed exchange rate controls on November 5 th, the
government can freely sell USD in unlimited volumes to deal with speculators. Five days later (10/11),
Russia officially announced plans to limit cash supply. Limiting the liquidity of the ruble is a punishment
for speculators, said Putin. Due to the fall in oil price, on December 1 st, Russia decided to sold 700
million USD on the foreign exchange and three days later (4/12), President Putin placed an
announcement that Russia will put punishments on speculators.

Russia also has some monetary policies to deal with this crisis. When the ruble depreciated strongly, BoR
(Central bank of Russia) adjusted its exchange rate management policy and "attacked" the speculation in
the market with strong intervention. BoR has pumped foreign reserves into the market to support the
ruble, spending up to $ 22 billion in March and up to $ 30 billion in October. The bank has also sharply
raised key interest rates to support the domestic currency, from 5.5% to 9.5%, after the increase last
month. Experts say that BoR's decision to float the exchange rate will cause speculators to lose direction
in the foreign exchange market and in the short term will help stabilize the ruble rate against the USD
and the euro. Previously, BoR's application of a narrow margin to the volatility of the ruble encouraged
investors to buy when the currency was near the lower limit of the trading range, when BoR would take
action to push prices up. The BoR's termination of intervention in the money market also relates to the
nation's foreign currency reserves. Russia's reserves were 400 billion USD, although down from 510
billion USD at the beginning of the year, is still quite large but the country needs a buffer to fight
divestments in the context of sanctions. Besides, Russia also does not suffer any loss when considering
the revenue from oil exports at the current exchange rate. With the price of Brent oil currently
fluctuating in the range of 84 USD / barrel, the amount that Russia collected on the exchange rate is
about 45 rubles / USD is no different from the beginning of the year, when the oil price was about 45
rubles. 110 USD / barrel (at the rate was 33 rubles / USD). Russian President Vladimir Putin said Russia's
financial agency will take the necessary measures to stabilize the local currency. According to him, the
key indicators of Russia's gold and foreign currency reserves and balance of payments are still good,
allowing it to control the situation without the need for special measures. The Russian leader said that
the unrestricted devaluation caused by speculation of the ruble would end soon, partly thanks to the
BoR's measures.

A year after the collapse of the ruble, people began to adapt to it. For example, people began to buy
cheap cigarettes, buy less cake and use electronics less often. Demand for many goods and services
declined, small entrepreneurs went bankrupt, and so did many large companies. About 15% of Russians
began to expand their private farms to grow vegetables and raise farm animals. Overseas travel has
become impossible for many people - and people are turning to domestic tourism, which has revived
the tourism industry. Interestingly, the stagnation in the Russian economy does not affect the
demographic situation in the country: despite the crisis, the fertility rate has even increased slightly.

After growing macro-stability, driven by the government’s policy response package of a flexible
exchange rate policy, expenditure cuts, and bank recapitalization, along with tapping into the Reserve
Fund, has revived facilitate the adjustment of an economy hit by the double shocks of low oil prices and
restricted access to international financial markets. The positive terms-of-trade effect from rising oil
prices, coupled with more stable macroeconomic conditions, are expected to drive Russia’s economic
recovery going forward. It was predicted that headline inflation will continue to slow, dipping marginally
below 4% at the end of 2017 and stabilizing at about 4% in 2018-2019. Real incomes, which will be the
key source of real income growth, will be helped by lower inflation. Improving market sentiments and
improved credit conditions are both projected to lead to a rise in private spending by 1.8 percent in
2017 and 2.5 percent in both 2018 and 2019, even with these improvements. The highlight changes
were thanks to decelerated inflation and household income and spending recoveries, the poverty rate is
predicted to decrease: the poverty headcount is estimated to decrease from 13.5 percent in 2016 to 13
percent in 2017, and to continue to decrease to 12.3 percent and 11.6 percent in 2018 and 2019,
respectively. “Boosting productivity growth remains key to achieving inclusive, sustainable and fast-
paced growth in Russia,” said Andras Horvai, World Bank Country Director and Resident Representative
in the Russian Federation. “While we already see the benefits of increasing macro-stability – not only
through a return to growth, but also in declining poverty – addressing deeper structural issues related to
demography and competitiveness would enable Russia to take full advantage of the positive
momentum.”