Chief economist update: The other president for life in the making

Sticks and stones may break my bones but sanctions will me get re-elected.

Lost among investor worries over increased volatility in the financial markets, the correction on Wall Street, the prospect of a greater than three Fed rate hikes this year and the prospect of a global trade war sparked by Trump's 25/10 tariff threat is Russia's improving fortunes.

To be sure, the numerous sanctions imposed on Moscow by "the West" starting in 2014 as "punishment" for its annexation of Crimea back in 2014, sent the country into recession in 2015 and 2016 but the economy has improved since then.

Preliminary estimates show Russia's GDP growth expanded by 1.5% in 2017 after a 0.2% contraction in the previous year. The Economist Intelligence Unit (EIU) predicts growth to accelerate to 2% this year. The unemployment rate has dropped to 5.2% in January 2018 from the three-year high of 6% recorded in March 2016.

These ensure continued improvement in its fiscal balances. Already, the government's budget deficit has improved to 1.5% of GDP in 2017 from 3.4% of GDP in the previous year.  It's the same for government debt - down to 12.6% of GDP in 2017 from 12.9% in 2016 and 15.9% in 2015.

As a result, the Russian ruble has appreciated by 48.2% from the all-time low of R84.24/US$ recorded in January 2016 and the Micex composite index reached a record high of 2341.9 points on 27 January.

Download The Good Economics Guide: Making sense of key economic data

While already on an uptrend, S&P Global Ratings upgrade of Russia's foreign foreign currency long-term and short-term sovereign credit ratings to investment grade of 'BBB-/A-3' from the junk level of 'BB+/B' on 23 February gave Moscow's currency and stock market an extra boost.

This is the second investment grade rating for Russia along with Fitch Ratings which has kept its investment grade rating on Russia unchanged on the same day. While Moody's Investor Services still rates Russia as "junk" or one notch below investment grade, it has raised its outlook to positive early in the New Year.

According to S&P Global Ratings: "The upgrade reflects the track record of prudent policy response that has allowed the Russian economy to adjust to lower commodity prices and international sanctions."

The other good news is that record low Russian inflation - down to 2.2% in the year to January from 2.5% in the previous month and below the 4% target - offers the Bank of Russia scope to cut interest rates further from the current 7.5% to boost economic growth some more.

There's no doubt Putin's high approval rating (80%) will get him re-elected for another six-year term on the 18th of this month. Russia's strengthening economy and credit ratings in the face of sanctions could, like China's President Xi, make him president for life.

Ben Ong is the Director of Economics and Investments at Rainmaker Group. He previously worked as a fund manager, economist, asset allocation strategist, portfolio analyst and stock market analyst. Check out his economics analysis here.

His latest book, The Good Economics Guide: Making sense of key economic data, is available free to download on the Financial Standard app.

Read more: ChinaPutinS&P Global RatingsBank of RussiaCrimeaEconomist Intelligence UnitFedFitchMicexMoodyTrumpWall Street
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