Russia Macro Monthly: Can continuity lead to change? – March 2018


Putin’s election address to Federal Assembly. In lieu of a concrete election program, the President made a late annual state-of-the-nation speech that laid out a liberal economic vision and tough foreign policy. The latter appears to be more electoral posturing than a major change in nuclear doctrine. We set out the main economic points and those with implication for business opportunities, in this monthly.

Kudrin warns of inertia. Alexei Kudrin said that there is still no agreement on an economic reform agenda within the government or with Putin. He warned that without a clear program the government will follow a “inertia program” which will keep growth low.

Support for Putin drops in big cities. There are few reliable polls but VTsIOM reported a sizeable drop in support for Putin in the country’s big cities (representing approximately 25% of the electorate). This is not really a surprise and is consistent with previous elections.

UK announces sanctions. The UK government sanctions (as a result of the poising accusations) are mostly political or fall into the “more of the same” category. They do not pose a major threat to the Russian economy or to UK companies trading with, or investing in, Russia. Moscow officials are dismissive of the impact but will be relieved that tougher and damaging sanctions were avoided.

Positive surprise in the economy. GDP is estimated to have grown by 1.9% YoY in January, driven by the manufacturing sector and, especially, in consumer spending. Real wages continue to grow and for the first time real disposable incomes were flat. Retail lending growth grew strongly in January (also February), although the CBR is now taking measures to slow unsecured lending growth.

Ruble stays strong. The ruble gained slightly, partly because of dollar weakness, and partly because of flight capital returning to Russia. Inflation remains very low at 2.2%, which gives the CBR room to carry on cutting rates. It would be a surprise (not a shock) if it cut at the March meeting but is expected to cut by 100 bps before year-end.

US promise new sanctions. The US Treasury Secretary has confirmed that there will be new sanctions in a matter of weeks. However, it is expected the measures will fall into the “more of the same” category rather than a serious (economically damaging) escalation. US officials continue to make clear that such measures are still possible if Russia is found meddling in the November mid-term elections.

Deripaska-Potanin standoff. Oleg Deripaska filed a suit to stop the sale of a blocking stake in Norilsk Nickel by Roman Abramovich to Vladimir Potanin. Abramovich had been the peacekeeper between the two owners of Norilsk but it seems hostilities will only be resolved by one of the partners buying the other out.