Wry & Dry

Russia - back from the economic brink?

W&D has to hand it to Tsar Vlad.  He knows how to manage austerity.  Or, as UK's new PM might say, "living within one's means."

Whilst the Russian economy was slowing before the oil price collapse, when the price collapse did hit, that source of revenue for Russia really hit the fan.  

And really hit the average Dimitri in the Red Square*.

Russia gdp fallTsar Vlad might have embarked upon a period of fiscal expansion to cope with the economic hardship.  But he has kept government expenditure under control - the budget is expected to be in balance now that the oil price has recovered to about $50.

Tighter fiscal and monetary policy has squeezed inflation to 6%, much less than the 15% of last year.  And Russia's government debt is a mere 11% of GDP.  It has paid down more than $200 billion in foreign debt since 2014.  Vlad doesn't wish to be beholden to anybody.

Of course, there has to be pain somewhere.  And it is being born by the workers.  Whilst unemployment has barely changed - the government agencies and employers have been told not to fire workers, but to pay them less.  Which, naturally, they have done.

In March, the government announced an increase in the minimum monthly wage to $110.  But the minimum subsistence level is $139.

So, the economy has stabilised.  But growth will come slowly.

Why do Dimitri and Olga endure this?

W&D and Mrs W&D visited Russia (Moscow and St Petersburg) in 2014 and were greatly impressed by its extraordinary history and how that history is captured not only in the buildings and architecture, but also in the persona of the people.  Hours spent speaking to locals is worth a gazillion Lonely Planet pages written for tourists who just wish to tick a box of another city visited.

Of Russian people, the soul of Russia, there is much of which to speak.

Suffice to say that Russians are a strong, stoic people and are great patriots.  It was to patriotism that Stalin turned when Hitler invaded in 1941, not the virtues of communism against fascism.

Russians accept with only moderate complaint the hardship that confronts them each day.  Part of this is the role of the Russian Orthodox Church through the centuries, which made forbearance a virtue.  Part is the reality of geography and the weather.

W&D suspects that Tsar Vlad is a student of Otto von Bismarck**, and knows full well the way to divert attention away from domestic troubles is international success: do whatever it takes to win those Olympic medals and invade a neighbouring country to save the local Russian-speaking peoples.   

Given the number of Russians living in Chelsea (London), W&D wouldn't be surprised if Tsar Vlad made it his next annexure target. 

But there is a long way to go for the Russian economy.

* But didn't hit everybody: the 110 wealthiest individuals own 35% of all financial assets held by Russian households.  Source: Credit Suisse. 

** The Prussian who engineered a series of wars in the 1860s that unified the German states into a powerful German Empire, under Prussian leadership. Whilst there was the parliament (Reichstag), Bismarck essentially ran Germany, with the assistance of the bureaucracy and the landed-Junker elite.  

This is Putin all over.  

But W&D considers that Putin is no match for Bismarck.  And it was Bismark who said in 1897, "One day the great European War will come out of some damned foolish thing in the Balkans."