MONTREAL - Russian Prime Minister Vladimir
Putin appears set to secure a return to the
presidency this weekend, with the strong
possibility that in spite of growing anger against
his hold on power he will win Sunday's election in
the first round of voting, without the need to go
to a run-off.
While the run-up to the poll
has been dominated by anti-Putin street protests,
voters are in fact benefiting from an economy that
grew at a 4.3% rate in 2011 over 2010, equaling
2010's rate of growth over 2009. Reflecting that
expansion, consumers are spending more -
circumstances that in many economies would reflect
positively on those in power. However, the present
strength in the economy masks important
weaknesses.
Last year's growth was thanks
mainly to a bumper crop in the
agricultural sector and
strong consumer spending, the latter showing a
particular boost in the last six months of the
year. Increasing investment figures throughout the
year and low overall inflation also contributed.
The positive economic data has continued
into 2012. Industrial production in January rose
3.8% over January 2011 despite weak external
demand, exceeding consensus expectations of
slightly under 3% that were based on December's
weak 2.5% result. Meanwhile inflation fell to 4.2%
year-on-year in January after the whole year 2011
registered 6.1% inflation, the lowest full-year
inflation figure of the post-Soviet era.
However, observers have widely remarked
that a strong contributing factor to the low
January figure is the postponement of planned
increases in household gas and utility bills until
July, several months following the March 4
presidential election.
Inflation is
generally expected to return in the second half of
the year after government price controls give way
to increased fiscal spending. The Central Bank of
Russia (CBR) is targeting a range of 6-7% for
inflation for the whole of 2012.
Russia's
reliance on energy exports is a worrying link in
the economy. Increasing amounts of commentary,
including in Russia, draw attention to the fact
that even in the medium term the country cannot
continue to rely so heavily upon foreign exchange
from such exports as it has done up until now. Oil
proceeds now account for a quarter of Russia's
gross domestic product (GDP) and nearly half of
its federal budget.
It is generally agreed
that balancing the budget requires a Brent crude
benchmark price of US$125. (As of this writing, it
is just under $123.) According to Mikhail Dmitriev
of the think-tank Center for Strategic Research,
as quoted in the Financial Times, "At prices below
$80 per barrel, this system would receive a blow
from which it could not survive."
When the
world oil price collapsed in 2008, the Russian
government pumped $200 billion into the economy
that it had saved from past oil revenues. Even if
Putin could survive politically and achieve
re-election to serve into the next decade,
Dmitriev observed that all "reserves of public
trust ... have by now almost been exhausted. ...
Most likely the authorities [would] face much
larger and more widespread public protests" if a
commodity price crash brought on another global
recession.
Such a development would
likewise kill the recovery in the Russian stock
market, doubtlessly exacerbating the discontent of
the middle classes. The dollar-denominated Russian
Trading System Index (RTSI) closed Tuesday at
1,735 with short-term technical indicators neutral
to slightly positive but with several very
short-term technical indicators very favorable.
The index is this week right up against an
important long-term resistance at 1,737 (mid-May
2006, confirmed early March and late May 2007).
Also the distinct possibility of a
triple-fan formation downwards from the May 2008
high cannot be discounted. On present data, the
third fan would currently be passing just over the
2,000 level.
A short-term descending-tops
downtrend resistance (based early April 2011)
would require over two months to fall to the 1,737
level, if the current chart formation required so
long a time in order to resolve its present
situation.
The chart of the
ruble-denominated Moscow Interbank Currency
Exchange Index (MICEX) is generally similar with
the RTSI's, but has already shown recent support.
The MICEX's short-term technical indicators are
generally more positive than the RTS's.
The MICEX is up 24.8% from its level on
October 5, bouncing off a long-term support at
1,265 two weeks after President Dmitry Medvedev
announced that he would not run for re-election in
deference to Putin. The RTSI is spectacularly up
40.3% since then (bouncing off support at 1,225).
Looking ahead, the Russian markets may
conform to the old "up on rumor, down on news"
adage. Consumer spending will continue to underpin
any general economic recovery in the country, but
higher taxes to reduce such heavy reliance on oil
revenues would be a damper on that factor.
Manufacturing will likely also continue tailing
off, although some observers expect it to pick up
again later this year when government funding may
again push investment demand forward.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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