Putin 4.0: Any changes?
In the March 18, 2018 presidential election, Vladimir Putin scored a strong victory, with 76.69% of the vote and a 67.5% turnout, according to preliminary results. As expected, Communist P. Grudinin came second, with 11.77% of the vote.
We see the strong victory of V. Putin as a negative factor in terms of the desire to push for economic reforms. The most probable outcome of this victory is a continuation of the policies set in the last six years, with a growing geopolitical agenda, increased domestic control over the elite and the general population, and the extension of confrontations with the West. Economic issues are likely to remain in second place. Currently Vladimir Putin doesn’t even have a formal economic agenda for his fourth term. The economic goals specified at the speech to the Federal Assembly on March 1 were vague and non-specific. We expect that to a large extent, the new economic agenda will consist of some repetition of the tasks of 2012, plus the policies of the current government.
We believe that in the next six years the Russian economy will maintain fairly low growth rates (1.5-2.0% on average annually). A cautious approach to fiscal policy will continue, and we do not expect any significant easing. Unlike in 2012, V. Putin hasn’t made generous promises to the population. We believe that in the coming years the share of social expenditure will increase to some extent, but there is no question of a "budget maneuver", which was envisaged by the 2012 “Strategy-2020”; it's more about cosmetic changes from the macroeconomic point of view. Authorities are not ready to loosen fiscal policy, rather giving priority to macroeconomic stability. Since the pace of economic growth will remain low, the space for fiscal maneuver remains small. Moreover, social expenditure obviously competes with ambitious goals for defense. The probable growth of social investment will be offset by the deteriorating demographic structure and increased workload of the working population.
The CBR in 2018-2019 will come to monetary policy normalization. The current leadership of the Bank of Russia has a high mandate of trust from V. Putin and the opportunity to pursue an independent monetary policy. At the same time, the monetary authorities believe that stimulating the economy by means of monetary policy is not effective.
Overall, this is likely a fairly favorable picture for a foreign portfolio investor investing in Russia’s domestic government debt but rather a pessimistic outlook for its citizens.
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