Insight
Putin hits a bad patch by Ian Bond 7 May 2020
Vladimir Putin could look forward to a good year when the Kremlin clocks signalled the start of 2020. His situation looks much less rosy now. Russia’s problems may have implications not only for Putin but for Western countries. At the turn of the year, Putin had celebrated 20 years in power, and faced no serious domestic opposition. Russia had achieved macro-economic stability, with inflation at 3 per cent (even if living standards for ordinary Russians had hardly risen in a decade). Oil prices, at around $60 per barrel, were high enough to boost Russia’s already sizeable sovereign wealth fund. The US and EU were internally divided and pre-occupied with their own problems; and he had developed a strong relationship with President Xi Jinping of China, the leader of the rising superpower. Putin used his annual address to the Russian Parliament on January 15th to announce significant increases in social spending; call for further improvements in the healthcare system; and propose a number of changes to the Russian constitution. In March, in an obviously staged manoeuvre, the Russian MP and former cosmonaut Valentina Tereshkova proposed a further constitutional amendment that would allow Putin to remain president until 2036. A popular vote was scheduled for April 22nd to endorse the package of constitutional amendments. On May 9th Putin planned to hold a grandiose military parade to celebrate the 75th anniversary of the end of the Great Patriotic War, with foreign leaders including Xi and French President Emmanuel Macron in attendance; his status would thus be acknowledged at home and abroad. Since then, however, the oil price has collapsed and the COVID-19 pandemic has gripped Russia. Those two developments in combination are leading to a sharp contraction in GDP. The rest of 2020 will be very challenging for Putin. When first China and then other countries began to shut down large parts of their economies in response to the outbreak of COVID-19, the oil price began to fall: Russia’s Urals crude fell from a high point this year of $62 on January 9th to $50 on February 11th. At this point markets probably anticipated that Russia would join Saudi Arabia and other major oil producers in cutting production to match global demand. CER INSIGHT: PUTIN HITS A BAD PATCH 7 May 2020
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