Economic Conditions for Most Russians are about to Get Much Worse, Analysts Say

Paul Goble

            Staunton, August 8 – Most Russians today are focusing on possible increases in pension ages, but they should be more worried about a larger and more immediate threat: an increase in inflation possibly to “explosive” levels as a result of international sanctions and government efforts to raise money, according to a group of Moscow financial analysts and financial experts.

            According to the group, which was assembled by the Rosbalt news agency, inflation will soon be accelerating because of increases in VAT and housing costs, higher prices for fuel, a decline in the price of oil, and a new wave of sanctions by the US, all of which will send prices up and the standard of living down (rosbalt.ru/russia/2018/08/08/1723017.html).

            Indeed, they suggest that inflation could rise to a level that would not only depress the average standard of living in Russia but send the economy into a tailspin because of the collapse of consumer spending, one of the most important factors except for the sale of raw materials which has been keeping the economy from slipping further into recession.

            Vadim Zhartun, head of the Nova Team consulting company, says that the Russian government’s decision to increase taxes to raise more revenue will “automatically affect” prices for communal services and do so at perhaps four times the current rate of inflation.  And both developments will lead to more inflation and less economic growth.

            In his view, there is no reason now to speak about economic growth at all: “the small increase in GDP which Rosstat reports, is connected more with the lowering by agencies of official data about inflation than with a genuine improvement of economic circumstances” in Russia.

            Moreover, Zhartun continues, “all this is taking place at a time of unexpectedly high prices for oil” and that means the economy has no reserves. Consequently, if or more likely when oil prices fall, the economic crisis could become severe with double-digit inflation, a decline in GDP, a chain reaction of bankruptcies” and other bad news.

                “One must not say that raising the VAT will be the only or even the chief cause of this, but one can say that it will only worsen the situation. There is no doubt about that.”

            Stepan Demura, a financial and stock market analyst, agrees.  Unavoidable increases in the costs of communal services will hit 80 percent of the population very hard, he says. The government has to know this because “all civilized countries lower taxes to stimulate the economy but Russia, judging by everything, has its own special path.”

            Vasily Koltashov, a political economist at the Institute for a New Society, says that the combination of higher VAT rates and rising communal service prices will “worsen the position of the consumer. And “this will occur under conditions when citizens even without this are suffering” from low wages or cutbacks.

            Government economists are correct when they say raising the VAT will not have horrific consequences by itself, “but if a new negative move begins in the world economy, if China reduces imports and weakens the yuan, if world oil prices fall and there is a new weakening of the ruble, not by five percent as now but more, then” the VAT increase will make things worse.

            Igor Nikoalyev, head of the FBC Institute for Strategic Analysis, says that new American sancitons will reduce the demand for rubles and the Russian currency will thus weaken. If the sanctions affect the Russian state debt, this will add to the downward pressure because no one will want to buy rubles.

                At the same time, he says, there will be fewer dollars offered and this will strengthen the US currency further weakening the Russian one. How much is an open question but it is obvious that the ruble is going to fall, inflation increase and the Russian economy and the Russian people suffer as a result.

            And Stepan Goncharov, a sociologist at the Levada Center, also expects the economy to worsen, inflation increase, and popular attitudes to deteriorate; but he says it remains unclear what if anything the population will do. Many in the regime expected more protests from the pension boost than have occurred; the same thing could happen again.

            But there is real dissatisfaction and it is deepening. At some point, “this could play a role when there appears, let us assume, an alternative political force which will try to play on these sharp issues. For the time being, however, leftwing and other opposition figures cannot channel this dissatisfaction and convert it into political success.”

            “It is possible,” Goncharov says, “that the opposition has not even made this task a priority.”