"Poekhali!" sad Vlad, refraining Yuri Gagarin's famous phrase. And just like, with a sweep of his hand, Mr. Putin hasRemoved the entire Russian Cabinet, including his long-serving pal, now ex-Prime Minister Medvedev; Outlined a hefty set of forward-promised reforms; and Added billions of dollars to the Global GDP by creating a tsunami of Russia-related analysis, opinion pieces, reports and updates in the vast Kremlinology Sector bridging journalism, opinnionism, and think-tankerism. WTF happened in Moscow today? Putin has been under some sustained pressure in the last couple of years on the domestic economy front. Russian economic growth has been anaemic, to put it mildly. Let's take a brief walk through some headline figures (to-date): Despite the 'recovery' from 2015 recession
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"Poekhali!" sad Vlad, refraining Yuri Gagarin's famous phrase. And just like, with a sweep of his hand, Mr. Putin has
- Removed the entire Russian Cabinet, including his long-serving pal, now ex-Prime Minister Medvedev;
- Outlined a hefty set of forward-promised reforms; and
- Added billions of dollars to the Global GDP by creating a tsunami of Russia-related analysis, opinion pieces, reports and updates in the vast Kremlinology Sector bridging journalism, opinnionism, and think-tankerism.
- Despite the 'recovery' from 2015 recession (GDP down 2.3%) and 2016 stagnation (GDP up 0.3%), Russian economic growth peaked at 2.3% in 2018 and slumped to 1.1% in 2019 (based on January-September stats).
- Industrial production is up 2.4% y/y in 2019 (latest data is for January-November) which is worse than 2.9% in 2018, but still miraculous, given the state of Russian Manufacturing PMIs (see: https://trueeconomics.blogspot.com/2020/01/5120-bric-manufacturing-pmis-4q-2019.html).
- Fixed capital investment is in a dire state: in Q1-Q3 2019, investment is up only 0.7%, down from the rate of growth of 4.6% in 2017 and 4.3% in 2018.
- Retail sales are up 1.6% in 2019 (January-November data), but behind 2.8% growth in 2018. Retail sales rose 1.3% in 2017. None of this enough to recover the sector from a wave of massive contractions in 2015-2016, when retail sales fell 10% and 4.8%, respectively.
- Exports have recovered, but are still running below 2011-2014 period averages.
- Current account surplus is still positive, but way lower than in 2018.
- Unemployment is a bright side, at 4.6% in H1 2019, down from 4.8% in 2018, currently - the lowest on record.
- After years of growth, population is set to slightly contract in 2019 compared to the post-Soviet peak of 2018. The change is estimated and is not statistically significant, but it indicates one breakaway from the prior trend: inward migration into Russia has slowed down substantially in 2018-2019, in part due to anaemic economy.
- Fiscally, Russia is doing brutally well, however. Government surplus of 2018 - at 2.6% of GDP is likely to be exceeded in 2019: January-November data puts surplus at 3.1% of GDP.
- Central Government Debt is at 13.7% of GDP as of October 2019, a slight uptick on 11.5% in 2018 and hitting the highest level since 2005, but more than benign, given it is entirely offset by the sovereign wealth funds and is being effectively shifted out of foreign currencies and into Rubles. As a reminder, in his first year in the Presidential office, Putin faced Government Debt of 79% of GDP, with External Debt being 67% of GDP. In 2019, external debt is at around 3.9% of GDP.
- Oil reserve funds are up massively in 2019. In 2018, the funds amounted to USD 58.1 billion. At the end of September 2019, this stood at USD 124 billion. Including FOREX and Gold reserves, and other sovereign wealth funds, Russian Government had USD 530.9 billion worth of reserves as of September 2019, almost back to the peak of USD537 billion in 2012.
- Inflation has ticked up in 2019. inflation hit an all time low of 2.9% in 2018 and over January-November 2019 this rose to 4.6%. Inflation has been a major historical point of pain in Russia, so return to above 3% price increases environment is a troubling matter, especially as the economy is barely ticking up any growth.
- Average monthly wages in rubles are growing: up from RB 43,431.3 in 2018 to RB 46,549.0 in 2019 (October data). And wages are up in Euro terms (from EUR587.1 in 2018 to EUR654.1 in 2019). Average wages are also rising in USDollar terms. Which is a point of improvement for the Russians.
- How to shift economy toward a faster growth path?
- How to resolve the 2024 exit strategy without triggering an internal 'civil servants war' in the corridors of power? and
- How to secure an upside to his legacy (remember, recency bias means that people remember more recent actions / legacies of their leaders, as opposed to the more distant ones)?
- gradually (a good thing, given weak institutional capital in Russia)
- rebalance the executive power away from the Presidential status quo
- toward a more co-shared power arrangement with the Duma (Russian Lower House of the Parliament).
- The only three details Putin mentioned today on the subject are:
- Letting Duma elect the Prime Minister;
- Giving Duma the power of appointing the entire Cabinet of Ministers and all Deputy Prime Ministers; and
- The President will have no veto power over the Duma on these appointments.
- Reality of a stagnant economy - traceable back to 2011 and post-2014 collapse of oil prices. This stagnation outlived the economic promises of the Medvedev's reforms and the endless statements from Putin about the need for diversification of the Russian economy;
- Reality of shifting voter preferences away from supporting geopolitical re-entry of Russia into the exclusive club of countries that 'matter' toward domestic agenda; and
- Reality of the Putin presidency facing the end game of transition of power - something that virtually never has been achieved in the past without a major mess.