Subject: Macroeconomics

Trimester II
Year: 2021-22
Date: 25.10.2021

Russia: The Story of the Comeback and Growth of a

Lost Nation

Group 5 Details
Name SAP ID Roll No.
Raghav Maheshwari 80512101003 D005
Prajesh Dey 80512100352 D015
Shubhangi 80512100894 D035
Shoumitra Gupta 80512100723 D045
Snehal Savarn 80512100377 D055

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 Russia: The story of the Comeback and Growth
of a Lost Nation

Introduction
When it comes to nominal GDP and GPD by purchasing power parity, Russia is the world's 11th
and 6th largest economies, respectively. Russia's GDP(nominal) is expected to be $1.71 trillion
and $4.32 trillion as per the purchasing power parity for 2021. Russia is known to be a
powerhouse in the world in terms of natural resources, having a huge resource of oil, natural
gases, and even precious metals. Russia is a country with close to 30% of the natural resources
which exist on the earth and estimated to be worth $75 trillion. These are clearly a significant
source of revenue for Russia. Oil and natural gas account for 70% of all exports. It also
accounts for 16 percent of the country's GDP. This is essentially why Russia is sometimes
referred to as the world's "energy powerhouse" (Milov, 2006). The country also has a robust and
sophisticated arms industry, and is the world's second largest exporter of arms, with $15.7 billion
in 2013 exports and a 20 percent market share for the 2016-20 period, behind only to the United
States, which has a 37 percent market share.

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Source: Statista

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The reason why our group chose Russia is because of the various ups and downs they have had.
Russia’s GDP had fallen by 3.0% in 2020 while the average contraction of the world economy
was 3.8% and the advanced economy was even greater at 5.4%. The following fact caught our
attention and we were curious to know more about the different measures that Russia took or
have been taking to perform better than other countries even in the pandemic. They've
experienced a number of setbacks, but they've always bounced back. It's a fascinating economy
to examine. We wanted to know what policies in the economy were constantly changing, and
how this led to their first recession and subsequent growth. The next paragraph lists a few of the
important instances that occurred as a result of the policy changes.

Russia has its own set of issues. One of the most pressing issues confronting the economy is
economic inequality. Only 111 people controlled 19 percent of Russia's wealth in 2015.
(Breslow, 2015). After the Soviet Union fell apart in 1991, it became a market economy. Russia's
GDP shrank steadily over that decade, owing to issues such as corruption and hyperinflation. In
1998, they were likewise hit by a financial crisis. The crisis was due to the fear of devaluing the
ruble and defaulting on national debt by the Russian federation. After that, though, they came
right back. Because to its policy reforms, Russia was able to attain "unprecedented
macroeconomic stability" during the 2000s, according to the World Bank (Rozhnov, 2007). Year
1998 and 1999 showed one of highest ever debt levels for the economy of Russia causing a
massive rise in the foreign exchange rate.

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Because they moved proactively during the 2008 crisis, Russia's economy suffered no long-term
damage. However, after they seized Crimea in 2014, things altered once more. As a result of this, as
well as their tensions with Ukraine, the United States, the United Kingdom, and a few other
countries imposed sanctions. This was also the point at which Russia understood its oil dependency.
The economy shrank by 3.7 percent in 2015, and it was predicted to worsen in 2016. (Matlack,
2016). They did, however, increase by 0.3 percent in 2016 and 1.5 percent in 2017. Russia's GDP
was expected to shrink during the pandemic, as it is in most other countries. According to an IMF
article, the economy was supposed fall by 6.6 percent in 2020 but the support measures along with
differently structured quarantine limited the GDP fall by 2.951%, now predicted to grow by
4.3 percent in 2021 as per the world bank.

Objective of the analysis

The research' primary objective is to comprehend Russia's macroeconomic situation over the
preceding decades. We want to know what caused the economy's ups and downs, as well as how the
economy dealt with and is dealing with the present pandemic. In addition, we want to know what
Russia's future prospects are. The following will be examined in depth:

 What were the changes on the fiscal front and the actions taken by the government to
sustain the economy after the crisis.
 Monetary policies alterations during the major economic and political changes after the
2008 crisis and how these were significant to the growth of Russia.
 Changes in trade and geopolitical connections, as well as Russia's exchange rate
policies with other nations, and their impact on the Russian economy.
 Macro-stabilization done by the Putin government in 2014-18 to bring inflation down,
budget in surplus.

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Analysis of the Macroeconomic scenario in Russia [2008 – present]

Source: The World Bank

Russia is abundant in natural resources. As previously said, oil and natural gas provide a
significant portion of their revenue. Russia was likewise affected by the 2008 financial crisis, and
they experienced a moderate recession in 2009, with their GDP contracting by 7.8%, as shown in
the graph above. However, the country suffered no long-term consequences as a result of the
economy's proactive steps. Because they were reliant on only a few goods, the impact was a little
more severe than it would have been otherwise. In 2009, the unemployment rate jumped from
roughly 6% in 2008 to around 8%. They had a solid year in 2010, with a 4.5 percent increase in
GDP and a 7.4% drop in unemployment (IMF, 2020).

Russia has been notably successful in bringing down the unemployment levels in the past decate
from 7.73% in 2010 to 4.6% in 2019. The increase to 5.73% in 2020 was highly due to the
pandemic and were also in controlled limits. Macro stabilization has helped significantly in
bettering the economy and reducing the unemployment as we can see in the graph that there is a
constant decline in the 2016-19 period.

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 Source: The World Bank

Russia was doing well until 2014, with its GDP increasing year after year. They were likewise
classified as a high-income economy by the World Bank in 2013. (Country and Lending Groups,
2013). According to Forbes magazine, Russia is the 55th best country for business. The GDP
continued to rise during that time, as seen in the graph, until 2014. Following 2014, Russia's
economy began to break down.
Russia saw a lot of geopolitical tension in 2014. Russia had annexed Crimea, and Ukraine was
embroiled in a dispute with the United States over Donald Trump's victory. Sanctions were
imposed by a number of countries, including the United States, the United Kingdom, Japan, and
others. Following that, Russia imposed sanctions on a few nations, affecting its balance of
payments. During that time, the Russian Ruble took a beating and devalued significantly,
reaching close to 67 Rubles for 1 USD, up from around 40 Rubles for 1 USD. Their GDP shrank
by 2.3 percent in 2015. The rate of inflation increased from 7.8% in 2014 to above 15% in 2015.
(IMF, 2020).

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 Source : IMF
Much of russia’s slow growth and inflation as well as unemployment growth can also be
attributed to 2014-15 fall in oil prices and the 2008 financial crisis. Even after all of this Russia
has been able to reduce the inflation rate ( consumer price index ) from 11.65% in 2009 to 3.38%
in 2020. This has been possible due to the prompt actions of the government.
Russia implemented a number of measures in response to rising food price inflation. Establishing
price caps on socially important foods was one of them. Restricting the export of basic goods,
and Subsidies to manufacturers of essential food products were some more measures.

At the same time, oil prices were declining, and Russia's reliance on oil was beginning to take its
toll. Russia had no choice but to adjust to the new normal. During this period, they were on the
verge of a recession. Because of the sanctions, high oil prices, and other factors, there was also a
capital flight out of the country. According to data from December 2015, 2.3 million persons
were added to the poverty line (The Moscow Times, 2015). Their GDP shrank initially, but they
recovered quickly. In 2016, the GDP increased by 0.3 percent, while in 2017, the GDP increased
by 1.6 percent (IMF, 2020).

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The above statistic also shows that in 2015 russian GDP declined much greater than the world
GDP but since then they have been able to gather pace in their recovery through government
policy changes and macro stabilization that will be discussed further in the report.
Russia is likewise regarded as having a very creative economy. It was regarded as the world's
12th most creative economy in 2016. Russia also has a high rate of patent applications and a
large number of high-tech enterprises (Jamrisko & Lu, 2016).
As previously said, Russia has a serious problem with unequal wealth distribution. After 2000,
they experienced a rapid expansion in GDP, as well as a significant increase in disposable
income. However, this was primarily confined to the wealthy. Only 111 people controlled 19
percent of Russia's wealth in 2015. (Breslow, 2015). In 2016, there were more over 19 million
individuals living in poverty, up from 15 million in 2015.
Russia's GDP, like that of most other countries, was expected to shrink during the epidemic. In
2020, the Russian economy was predicted to decrease by 6.6 percent, followed by 4.1 percent
growth in 2021. (IMF, 2020). They did, however, restrict the GDP decrease to to 3%. Due to the
epidemic, they faced a significant increase in unemployment in 2020, and many individuals were
laid off. However, these workers have lately resumed employment. Around 8.1 million
coronavirus illnesses and 2.3 lac coronavirus deaths have been reported in Russia. Russia still
has a long way to go before becoming free of the pandemic, unlike New Zealand, which is
mostly Covid-19-free today (Coronavirus Cases, 2020).

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