Russia might be in crisis; Putin, not so much

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In late November, the canals of St. Petersburg, the so called Northern Venice, are covered in ice. The few hours of sunshine and the extremely low temperatures make these days quite an ordeal. The ambulances crisscross the city in search of hobos and drunken people, taking them off the streets to prevent deaths from frostbite. Every winter about 600 people die on the streets of St. Petersburg, and that's not counting all those who've had their limbs amputated, and other victims of frost.

 

At the Nevsky Ave, in the center of the golden-clad city that was built by Peter the Great in place of some swamps next to the Gulf of Finland, posh shops are lining the sidewalks, alongside shiny restaurants and souvenir shops. St. Petersburg is not just a tourist hub and Russia's primary Baltic port, but also the country's second most important city after Moscow. It's a huge economic center. But it still hasn't managed to avert the crisis that has engulfed the whole country.

The recent news that from Jan 1, the ticket for the public transport would surge by 30%, was met as if it were the umpteenth treason against the people. But this painful change does have its reasons. In recent years, the Rouble has shrunken by 40%, mostly due to the dropping oil prices. The economic sanctions against Russia do have some role too, but it's mostly about the oil. Because it makes up for nearly 50% of the government revenue. Which makes Russia very vulnerable to the fossil fuel prices. The banking crisis and the shrinking consumption have added to the perfect storm, thus causing a lasting recession. The World Bank assesses that Russia's GDP has decreased by 3.7% for 2015, compared to a +0.7% for the preceding year. That's some serious stuff. The effects of this can be felt everywhere.

The temporary stabilization of the Rouble after the initial shock from last year was no consolation though, because in the meantime the food prices kept skyrocketing (between 20% and 40% increase). The medicines, by 20%. The list could go on. (Just to remind that major political turmoil broke out in the Middle East mostly because of food prices - the best example is Tunisia, which kick-started the so called Arab Spring).

More than 15% of the Russian population lives below the poverty line as of now. That means 21+ million Russians make less than 125 euro a month. A significant drop in consumption in Roubles was registered in the first half of this year, 3.1%.

In order to deal with this predicament, the public and private enterprises are using such unpopular methods like freezing or cutting wages. The Russians' real income dropped by 5.9% in October, compared to the same month of 2015. The crisis has opened up the income gap even more than before (and it had been pretty grim even before the crisis), unemployment has surpassed 6%, and private debt has jumped up to dangerous levels.

All that said, president Putin somehow still manages to remain immune to criticism, and preserve his aura of a protector of the realm. The recent arrest of the minister of the economy on charges of corruption, and the appointment of 34 year old Maxim Oreshkin, shows that there's a new strategy for changing the guard at the tops. Thus the Russians can witness that their leader is "doing something", instead of sitting idle aside and not working on the problems.

So we end up in the weird sitution where more than half of the Russians believe the economic situation has deteriorated, but no one believes the president is to blame for that. His ratings remain higher than 80%, and 2/3 of the Russians want him to run for a 4th term in 2018.

Most of the population believes that the EU's and America's policies toward Russia are to blame for her woes, as well as the corruption and incompetence of the Russian MPs and bureaucrats who "make decisions on things they know nothing about", and "only care about lining their pockets". But not Putin.

Next year is expected to be of crucial importance for Russia. The WB forecasts a 1.4% growth for the Russian economy. The OECD and OPEC deals for limiting the oil production and balancing the oil prices is also expected to contribute to the economic revival.

In his traditional State of the Nation address a couple of weeks ago, Putin didn't focus that much on international policy, but mostly talked about the main measures his government was planning: addressing the banks, corruption, health-care, and education. He said the economy is starting to get back on its feet, and inflation won't exceed 6% next year. He also said the Western sanctions and the corresponding counter-measures have "helped the domestic market and domestic producers, especially in agriculture", and now "they are giving us more revenue than arms sales" (commendable).

Putin has seemed unimpressed by the sanctions, anyway. The general argument is that during the Nazi blockade in WW2, millions of people died in Russia - and mere sanctions cannot kill Russians. The expectation is that Trump's ascent to power will mean a warming up with America, and consequently, with Europe. The sanctions are expected to be dropped some time next year if the logic of the events is to be followed. And then Russia will be back in the game. Which means, Putin will become even more assertive. And with a friend of Putin's in the White House, there'll be nothing to counter him. We in East Europe can brace ourselves for another Iron Curtain.