Page 5 - Eastern Europe Outlook 2020

1.0​ ​Russia - Executive Summary
President Vladimir Putin gave the keynote speech at VTB’s RUSSIA CALLING! 2019 annual investment summit where he outlined the key challenges the government has to address in 2020.
Putin said: “The key indicator of economic development is the real income of the population.”​ The president highlighted:
i) although GDP grew +1.1% y/y in 9M19, there was a certain acceleration in 2H19;
ii) the average unemployment rate was 4.6% in 9M19, the lowest in modern Russian history; and
iii) the current inflation rate is 3.6%, which might decline to 3% or even lower at the beginning of 2020.
Putin said he regarded price stability as the most important achievement for Russia ​—​ after the hyperinflation of the 1990s Russians are particularly allergic to inflation ​—​ which was the result of systemic work by the government and the Central Bank of Russia (CBR), creating new opportunities to boost the economic growth rate and its quality.
The country’s key structural challenges lie in:
i) increasing labour productivity via cutting-edge technology, higher growth of qualifications and new competencies;
ii) increasing the competitiveness in non-military sectors, such as the manufacturing, agriculture and services sectors.
The result would likely be an increase in non-commodity exports alongside the defence and mining industries. To achieve this, the government has set the task of launching a new investment cycle, where the annual volume of fixed investment will be 25% of GDP, and eventually 27%. Fixed investment was 21.6% in 2019. The government expects investment growth to reach 5% in 2020 and 6.5% in 2021.
The investment goal is possible, but Russia is suffering from a crisis of confidence that is visible in the extremely high dividend payments (owners take cash rather than invest) and extremely low corporate borrowing, which is the other side of the same coin.
The government understands it needs to do something about boosting domestic investors’ confidence in the economy, but while the draft version of a new investor protection law was very radical, the version that was submitted to the Duma was so twisted by state-owned enterprise (SOE) lobbying that everyone hates it and it is very unlikely to be passed. This is in a nutshell the problem the government needs to overcome.
The CBR listed some of the main risks to the Russian economy in 2020 ​in December. The debt burden of the population growing against the background
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