Russia Macro Monthly June 2018: Will the new government team fare better than the nation’s footballers?


New government, new challenges. Prime Minister Medvedev unveiled a government with a few new faces, and a plan to deploy RUB8 trillion (US$129 ln) on national projects on health, education construction, and the digital economy.
Kudrin given oversight role. Alexei Kudrin will head the Audit Chamber. Kudrin has regularly stated that he would never take a non-job in government so it is expected that he will make the Audit Chamber a more vocal agency and have a greater role in budget spending oversight.
Waiting for the Presidential Administration (PA). The next major shift in the Russian political landscape should come when Putin reshuffles his Administration, which previously has had more power than the government in shaping economic policy.
Growth looking weaker. The business confidence indicators are pointing towards a downturn for the first time since 2016. GDP growth rebounded in April but is still only around 1.7% based on leading indicators. The economy could do with a stimulus. The only good news is that real wages are strong, up over 9% year-to-date.
More businesses fear downturn. A poll carried out by VTsIOM reported that 63% of the 1,500 Russian companies it surveyed said that their business had deteriorated due to the economic downturn. 33% said that they may go out of business in the near future. They blamed general economic uncertainty, declining domestic demand, high taxes and utility tariffs as the key concerns.
Oil boost. News that Russia and Saudi will support a new oil quota deal only briefly hit the oil price. The higher average price has allowed MinFin to forecasts a budget surplus of 0.5% of GDP.
Counter-sanctions. The good news is that the first counter-sanctions law has been de-fanged and is unlikely to lead to any bans on US products. The bad news is that a first reading has been given to a bill that would make it a criminal offense to comply with anti-Russian sanctions. Putin promised at SPIEF that this bill would be modified.
Another rate cut. Inflation is flat at 2.4% annually, and the CBR is very likely to cut another 25 bps in mid-June.
Foreign funds reduce Russia bond holdings. The CBR said that foreigners had cut their holdings of OFZs from 34.5% of the total to 31% of the total, with very little effect on yields.