Russia politics: Russia in 2018: all quiet on the eastern front?

Content Type
Country Data and Maps
Institution
Economist Intelligence Unit
Abstract
No abstract is available.
Topic
Politics, News Analysis, Forecast, Political outlook
Political Geography
Russia
  • We do not expect political or economic upheaval in the Commonwealth of Independent States (CIS) region in 2018.
  • In Russia Vladimir Putin, the president, will be re-elected for a fourth term. However, vulnerability to political and social instability will remain high.
  • The economy will be a repeat of 2017, featuring modest real GDP growth and low inflation-provided oil prices remain stable.
  • In eastern Ukraine we expect the Donbas conflict between Ukraine and Russian-backed rebels to remain simmering.

With the exception of Ukraine, where the 2014 Euromaidan revolt led to a reconfiguration of the political scene, the CIS region is characterised by low levels of political and social upheaval. From the most authoritarian country (Turkmenistan) to the most democratic (Moldova), the leading political parties and players have seen little renewal in recent years. We do not expect this to change in 2018. Regarding the economy, growth and exchange-rate movements in the region are highly correlated to movements in global oil prices, especially in large oil exporters such as Russia, Kazakhstan and Azerbaijan. Owing to important trade links and high levels of remittance flows, the performance of the Russian economy has a direct impact on that of smaller CIS countries in Central Asia (the Kyrgyz Republic and Tajikistan) and the South Caucasus (Armenia and Georgia-Georgia is not a CIS member, but is included in our discussion of this region). Given our forecast for a broadly stable oil price of US$63/barrel in 2018, the growth outlook for most countries is unlikely to change significantly this year.

On the economic front, a repeat of 2017

Despite a presidential election and the football world cup taking place, we do not expect any meaningful political or economic changes in Russia in 2018. After contracting in 2015-16, the Russian economy stabilised in 2017. We expect this stabilisation to continue this year: we forecast modest real GDP growth, low inflation (by Russian standards) and a broadly stable rouble. We believe that international financial sanctions imposed by the EU and the US, which started in 2014 owing to Russia's annexation of Crimea and backing of separatist rebels in Ukraine, will remain in place. The US could impose new individual sanctions, the effect of which will remain limited, as such sanctions are usually symbolic (they restrict only travel to the US and freeze the assets that an individual holds in that country). Additional US sanctions on Russian sovereign debt may also be announced; such sanctions would not complicate debt issuance for the Russian state, although they could have a negative effect on investor sentiment and possibly lead to a depreciation of the rouble. Long-term structural factors (including low productivity growth, a bleak demographic outlook and a weak financial sector) will continue to limit potential growth.

Russia's presidential election: much ado about nothing

On the political scene, Mr Putin will be re-elected for a fourth term in the first round of the presidential election on March 18th. His re-election is assured, given the absence of credible opposition candidates and the backing of state media outlets, which will highlight his (real or imagined) achievements. Even without these supporting factors, the Russian population strongly backs Mr Putin, whose approval ratings have been consistently above 80% since early 2014 (with Russia's actions in Ukraine increasing approval ratings). The only three questions that remain unanswered are that of turnout (which Mr Putin would like to be high to bolster his international credibility); that of the identity of Mr Putin's next prime minister (possible candidates could include, among others, Elvira Nabiullina, the governor of the Central Bank of Russia, Sergei Sobyanin, the mayor of Moscow, and Denis Manturov, the minister of industry and trade); and, in the longer run, that of Mr Putin's successor (we believe that it is too early to say who this will be).

Political instability will remain high

Russia's political stability, buttressed by apparent high public approval ratings for Mr Putin, may be deceptive and only skin-deep. The country may be one of the biggest "black swans" of political risk in 2018. First, high levels of corruption at all levels of society exacerbate economic disparities between the richest and the poorest. The disconnect between Russia's population and its elite used to mitigate this factor in the past. However, with the emergence of social media, the population seems increasingly aware (and more and more reluctant to accept) this disparity, as the protests in early 2017 showed. The second vulnerability relates to low levels of public trust in government (which is seen as a distant apparatus by the majority of the population), compounded by still fresh memories of the collapse of the former Soviet Union. In addition, factionalised Russian elites compete to advance their sometimes conflicting economic interests, which constitutes another area of instability. The third weakness relates to ethnic fragmentation, with tensions especially high in the Caucasus regions of Chechnya and Daghestan, where the oversized Russian security apparatus shows little respect for human rights. Finally, Russia's relationships with Western countries have reached a low point in recent years, after Russia annexed Crimea and started to back rebels in eastern Ukraine in 2014. All in all, the international situation is now less stable and predictable than during the cold war.

The Donbas, not quite frozen

Since 2014 Russian-backed separatist rebels have been at war with the Ukrainian army in Ukraine's eastern Donbas region. According to the UN, at least 10,303 people (including 2,523 civilians) have been killed since the beginning of the conflict in April 2014. After intense fighting in 2014-15 the conflict now appears frozen and has disappeared from international media headlines. The frozen conflict serves Russian interests, as Mr Putin's diplomatic priorities include preventing Ukraine (or any other CIS country) from joining the EU or NATO and strengthening his credentials on the international scene. In Ukraine, the constitutional reforms required by the Minsk II peace plan are controversial, and a majority of the population opposes some of the provisions of a new Donbas reintegration law. In addition, the Donbas conflict no longer appears to be at the top of diplomatic agenda. For all of these reasons, we believe that no progress will be made regarding the implementation of the Minsk II agreement, at least not before the next presidential election in Ukraine, in 2019. Meanwhile the conflict will keep simmering. At least seven Ukrainian soldiers have died in the Donbas since the beginning of 2018.

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