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60 I Eastern Europe bne June 2021
Russia business confidence survey
Oil prices had fallen to a low of $18.25 per barrel in November 1998, effectively bankrupting the government, but during Putin’s first year they began to recover.
It's widely said that the prosperity that followed Putin’s election was gifted to him by rise of oil prices, but it actually took years for oil prices to climb. By the end of December 2000 oil had recovered to $41, but in 2001 they dived again to $30 by December 2001.
Yet the economy bounced back from
the 1998 crisis and grew 10% in 1999
– a record that has yet to be beaten – and continued to expand in the fol- lowing years, largely because the crisis killed off the “virtual economy” that was run on barter and everyone switched back to using a much more fairly valued ruble to settle bills instead.
An economic recovery was well under- way by 2002 when oil prices began their inexorable climb to their peak of $170.80 in June 2008. But despite the torrent of petrodollars pouring into the Kremlin’s coffers, the population didn't feel espe- cially confident of the future. The trauma of the chaos during the Yeltsin years, the hyperinflation and the instability of the ruble kept them nervous, although the quality of life was improving steadily during between 2000 and 2006.
The point is probably best illustrated by the capital flight that continued throughout those six years. As bne
Source: Rosstat
will be fed by the boom in commodity prices currently under way. The price of iron is at a nine-year high and copper prices are at an all-time high and expected to stay there, driven by the rising demand generated by electronic gadgets and electric cars. Oil prices have also recovered and are comfortably over $60 a barrel – well above the budget’s breakeven price of $42 – which is also producing cash to prime the pump.
All the conditions are in place to drive growth, but the Russian government is still grappling with raising investment levels into its 12 national projects, which is the policy vehicle that is supposed to drive the next round of long-term growth.
The consumer confidence index, which reflects the aggregate consumer expec- tations of the population, in the first quarter of 2021 compared to the fourth quarter of 2020 increased by percentage points (pp) and amounted to -21% in the first quarter – its best result in a year – but is only measured quarterly and has not been updated for May. So far, con- sumer confidence in the first quarter still remains worse than the pre-coronavirus levels, which reached a maximum of 16% in 2019 and -17% in 2018. Given the population’s very high expectations for prices to rise that are at least double the actual rate of inflation, it appears the population remains significantly more pessimistic about the future than business people.
The tragedy of 2008
April’s confidence result was last seen in the halcyon days of the late noughties
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boom that ended in a tragedy that has coloured the Kremlin’s thinking ever since.
It is hard to exaggerate the extent of the tragedy that the global finance crisis wrought on Russia and the long-term consequences it has had on the business thinking and the government’s policy making ever since.
Russia was booming in those days, with GDP growth running at 6% to 8%, and there was even talk of “overheating” at the time. Russia bounced back from the Asian crisis in 1997 that caused the Rus- sian financial meltdown a year later in August 1998.
Two years of misery followed until Rus- sian President Vladimir Putin took over as president in 2000, in the same week as IKEA opened its first store in Moscow.
Business confidence survey