Page 5 - RusRPTMay20

1.0 ​Executive summary
April was one of the craziest months on Russia’s record. Oil prices crash to less than zero for the first time in history and the full weight of the coronavirus (COVID-19) pandemic tsunami hit the Russian economy. For most of the month investors and analysts have been scrambling to get their heads around just how bad this crisis is – and as each day passed it became apparent that the shock was getting worse and worse.
By the end of the month the entire country was on strict lockdown with just under 100,000 officially reported infections but a difficult to believe 867 reported deaths. The real numbers are believed to be much higher and Russia’s curve is not expected to start flattening until the middle of May. So far Russia’s medical system has coped, but only just. Luckily the majority of the infections are concentrated in Moscow, which is the city best equipped to deal with the tragedy.
The big question remains how badly the economy will be affected. At the start of the month a variety of analysts were predicting a 1% contraction and Finance Minister Anton Siluanov said the RUB12 trillion ($173bn) in the National Welfare Fund (NWF) would be enough to fund budget deficits for a decade. But within weeks Siluanov was walking those comments back and said half the NWF would have to be spent this year alone on rescues and stimulus and deficits could be covered for two, maybe three, years.
Still, despite the escalation, the Russian economy remains in fairly robust health. The mere existence of the NWF means MinFin has a reserve it can call on and the basic spending of the budget can be maintained. Russia’s low inflation, debt and unemployment means there is plenty of wiggle room to absorb the worst of the stop-shock. While incomes and the standard of living will be set back again – just after the economy was starting to turn the corner – Russia’s economy is still in much better state than most of its EM peers.
For Russian President Vladimir Putin the crisis is a major political headache. He was hoping to hold a referendum on changing the constitution that would allow him to stay on for another two terms. This doesn't mean he will take up the option, however, the possibility he may stay on removed his “lame duck” risk and should prevent the open jockeying amongst the elite to place a replacement ahead of the 2024 vote that threatened to undermine Putin’s real power in his last years in office. Now he will have to hold the referendum not when the economy was on an upswing, but in the midst of renewed poverty and woe which will make it much harder to railroad through.
At the same time the fresh crisis came just as real incomes had turned positive in the last quarter of 2019 and the beginnings of a “feel good” factor were already visible in the retail turnover statistics. Incomes have been shrinking for most of the last six years and after only a short respite for the rest of 2020 they will go back to shrinking. Trust in Putin has been falling and social dissent has been growing, albeit slowly. While there is almost no chance of a so-called coloured revolution in Russia – the middle class have too much to lose – the people’s confidence in Putin is waning slowly and he is well aware of this. His best defence is “at least we are not Ukraine or Belarus” and that line still carries a lot of heft in Russia.
5​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com