Weekly 4 January 2019 Weekly 4 January 2019

Looking ahead: what to watch in Russia in 2019

Hello! As the world goes back to work after the New Year holidays, Russians still have a few days off left. But to kick off 2019, we sum up some of the major developments of last year for you and look forward to the year to come, with some tentative predictions. Our weekly newsletter in its usual format will be in your inboxes next Friday.

The economy and sanctions

The Russian economy didn’t fare too badly in 2018: in fact, far better than we predicted a year ago. Economic growth of 1.8% was just half global economic growth, but no one had expected anything more. Inflation of 4% was the lowest in modern history and new, blockbuster U.S. sanctions, which had threatened to destroy the businesses of the country’s largest banks, never materialized. However, some sanctions were imposed in April, pummeling the ruble and Russian equities and hitting individual oligarchs — particularly billionaire Oleg Deripaska.

Over the course of 2018, the ruble lost 20% of its value against the dollar, putting it among the world’s top 3 worst performing currencies. Above all, this benefitted the budget and natural resources exporters. The Ministry of Finance added over $60 billion to the National Reserve Fund and owners of major oil and gas companies saw their net worth rise by $9 billion.

Most Russians ignored the ups and downs of crude prices and the falling ruble. Household income stagnated for the fifth year in a row, but this did not mean consumption flatlined. Interest rates were at record lows, and the population’s debt load grew by $40 billion (20%), fueling the Central Bank’s fears of a bubble that is ripe for bursting.

Putin’s decisions and his approval rating

You have to give President Vladimir Putin (and his advisors) some credit: 2018 was the first year in a long time when the Russian leader decided to sacrifice popularity in order to carry out a difficult, but necessary, reform. The pension age for women was raised from 55 years to 60 years and for men from 60 years to 65 years.

Increasing the pension age by five years in a country with major disparities in life expectancy and a long tradition of a socially-orientated state cost Putin a 20% fall in his approval rating. The year ahead offers Putin unlimited opportunities for similar major reforms, but no plans have been made public at this point.

How to spend it?

Despite its unpopularity, the pension reform will not even bring any new money to the budget in the near future: all the savings it creates will be used to pay pensions. But 2019 also sees the first national tax increase in Russia since 2000: a rise in VAT from 18% to 20% (implemented on January 1). This doesn’t sound like much, but it will add an annual $10 billion to the budget. If Putin’s rating needs to be lifted, this money is available for bread and circus.

What else to look out for:

  • The government tried, and failed, to block messaging service Telegram in 2018 and this year it’s likely they will give it another go.
  • The outcome of Ukraine’s March presidential election is completely unclear, with several candidates in with a chance. Will Russia try to influence the voting and could a change of leader get the peace process off the ground?
  • Russian civil society and business will continue to develop, despite the odds. Last year we saw millions raised via crowdfunding in support of independent media, the green shoots of Russia’s own #metoo movement, new driverless cars and hundreds of millions of dollars in investment for Silicon Valley startups.

Peter Mironenko

Translation by Tanja Maier, editing by Howard Amos.

This newsletter is supported by the Investigative Reporting Program at UC Berkeley


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