Page 6 - RusRPTMar19

1.0 Executive summary
Russia’s economy put in a modest 0.7% growth in January y/y, as expectations for this year remain subdued, despite a controversial upgrade to 2.3% growth by Rosstat for the whole of 2018.
Russia’s economy is growing again, but that growth is way below potential. The forecast for growth in 2019 is 1.3-1.8% and the same again for 2020 before growth starts to respond to the extra RUB2 trillion of spending a year being invested as part of president Vladimir Putin May Decrees spending programme on infrastructure and the social sphere that is supposed to “transform” Russia. Analyst say that even 3% growth in 2021 is a “very ambitious” target.
But growth has not been the Kremlin’s priority. With new US “crushing” looming, the Kremlin has focused sanction-proofing the Russian economy.
External debt has been driven down to 15% of GDP, one of the lowest levels of any major economy in the world. The central bank sold off its US treasury bills holds and has been stockpiling gold since 2007 (so it’s reserves can’t be seized). A payment system has been set up (ot counter the threat of cutting Russia off from SWIFT). A crackdown on corruption and improvements to tax collection system has seen the tax take soar by 20% in 2018, while the tax burden stayed the same saw the breakeven price of oil needed to balance the budget tumble from $115 in 2008 to $49 now – less than the $65 average price of oil in 2018. And a tax hike to VAT went into effect in January while retirement ages will be raised to further shore up the government finances (so Russia doesn't need international investors to buy its bonds).
This campaign continues. This spring the Russian government is experimenting with setting up its own Internet in case it gets cut off from the global one. The Kremlin has already insulated Russia to the point the where there is very little the US sanctions can do to hurt Russia’s economy.
But this has come at the cost of stifling growth. Investment, both domestic and inbound, remains very low. Russia’s should be using its rock solid fundamentals to boost growth rather than build a financial fortress. While the corporate and banking sectors are back in profit real incomes fell again in 2018 for the fifth year in a row.
The plan is to use the surplus and go it alone in the form of massive investment as part of the May Decrees and under the 12 national projects.
The discontent from the Kremlin’s fortress mentality and the falling living standards it has caused has lead to growing discontent and falling popularity ratings for Putin personally, which threatens him politically.
Putin attempted address these concerns during his state of the nation speech in February announcing a Santa’s sack list of social spending increases that are designed to make people’s lives feel better and head off social unrest. Of all the initiatives he announced, across the board public sector wage increases are probably going to have the biggest effect has half the population are either
6 RUSSIA Country Report March 2019 www.intellinews.com