Russia Macro: Is Moscow facing a winter of “content”? – October 2017


Another good month. GDP growth was 2.3% in August, up from 1.8% in July. This came from good performances in industry and agriculture, and continuing recovery in the consumer sector. Construction is also strong, up 6.1% in August.

Inflation continues to fall. August saw another post-Soviet low in inflation at 3.3%, helped by food inflation of only 2.3%. This should enable the CBR to continue cutting rates.

Ruble edges higher. The ruble edged a little better against the dollar and the Euro, albeit less than the 7.4% gain in the oil price. The government assumes an average rate of 64.7 in its draft 2018 budget.

Mixed news on competitiveness. Russia fell in the World Bank’s Ease of Doing Business rating, and rose in the World Economic Forum’s ranking. However, the scores in each were little changed.

Saudi investment commitment. The first-ever state visit by a Saudi ruler led to some big investment commitments and a clear indication of an improved political relationship. Both counties indicated they may extend the oil production deal into late 2018.

Major bank failures. The CBR has taken control of Otkritie and B&N Bank, both in the top fifteen by assets. There has been little knock-on effect in terms of a run on other banks and in the repo market.

Fitch upgrades. Rating agency Fitch upgraded the outlook for Russia risk to positive (from stable) but kept the country at one notch below investment grade. It said that only geopolitical risks are keeping the rating below investment grade at this stage.

Five governors sacked. There was a rush of sackings in the last week of September, part of the president’s broader personnel policy of bringing in younger managers. This is likely to be the last change of governors before the 2018 elections.

No interest in protests. A poll carried out by Levada Center shows that only 11% of people said they are ready to take part in political protests while 82% said they would not. 69% of people said they do not expect any protests, even if economic conditions deteriorate.

Huntsman confirmed as new ambassador. Jon Huntsman brings independent political clout, which should help in putting US-Russia relations on a more pragmatic basis. The best that can be hoped for is stabilization, at this point.