Page 5 - RusRPTOct20
P. 5
1.0 Executive summary
The Russian economy has weather the COVID storm remarkably well, although the economy will still contract by about 4% this year and end with a federal budget deficit of some 4% of GDP. However, the performance of the economy has been far better than the shock caused by the previous large shocks in 1998 and 2008.
The prognosis is Russia will return to moderate growth in 2021 of around 2% and stay there for one or two years and the budget should return to a surplus.
Deutsche Bank found that while Russia was the third-best performer from eight major emerging market economies in terms of GDP, it will slide back to sixth place over the next 18 months.
With over $600bn in hard currency reserves, and some $180bn of that in the National Welfare Fund (NWF), which is specifically tasked with supporting budget spending in times of trouble, there are plenty of resources to support the economy.
However, growth will slow somewhat as the government remains extremely conservative when it comes to using the NWF. While the government could use its reserves to pay of its entire public and external debt tomorrow and still have $100bn left over – equivalent to four months of import cover and enough to support the stability of the national currency – it is unlikely to do this as it sees these reserves as a strategic defensive weapon in its economic war with the US.
The threat of new sanctions are rising following the poisoning of anti-corruption blogger and opposition activist Alexei Navalny in August and the Kremlin’s support of Belarus' self-appointed president Alexander Lukashenko in Belarus Russia, in addition to the fight over the construction of Nord Stream 2 as well as a number of other fights.
In addition it seems increasingly likely that Joe Biden will win the November US presidential elections, a Biden administration is likely to be a lot tougher on Russia than the Trump administration.
At the same time Russia only has external debt of just under 15% of GDP and could massively expand borrowing to pay for a Keynesian economic stimulus package. While the Ministry of Finance is planning to increase borrowing to 20% of GDP, its highest level in almost 20 years, this is still a modest amount and the goal is to preserve the reserves at their current levels because of the geopolitical tensions.
5 RUSSIA Country Report October 2020 www.intellinews.com
