Continued gains for Russia
The Russian stock market continued to rise in June. The gain for Carnegie Rysslandsfond was almost 8%, and the fund is up 33% so far this year.
Russia’s first-quarter economic growth fell to an annualised 0.5%. We expect 1.5% for the full year. Inflation is still falling and is now 4.5%, as a consequence of which the central bank recently lowered its policy rate by 25 basis points to 7.5%. We anticipate another reduction later this year. Budget revenue increased by 8.6% in May, compared to May last year, and Russia continues to show large budget surpluses. The expectation for full-year 2019 is a surplus of 1.7% of GDP, but it may well be more. The balance of payments also looks strong, and the surplus for the first five months was USD 48.7 billion, which was slightly better than the same period last year.
Russian public confidence in President Putin has continued to fall, with his rating down to 30.5% on May 26, the lowest since 2006. This number was 47.4% a year ago.
Sanctions against Russia are back on the US agenda. A political platform of 27 democratic congressmen calling themselves The Blue Dog Coalition claims to support sanctions against debt issued by the Russian state. This is nothing new, and currently has no practical significance.
President Trump is threatening sanctions to halt construction of the Russian Nord Stream 2 gas pipeline, and a law is being prepared called the Energy Security Cooperation with Allied Partners in Europe Act, shortened to ESCAPE.
The New York Times recently reported that US security services have planted viruses in the Russian power grid. The aim is for these to be used in the event of a conflict with Russia, and would be able to knock out power supplies.
There was continued focus on Gazprom in June as it prepared a new dividend policy to confirm a goal of distributing at least 50% of profits. The finance ministry also stated that it will not proceed with a previously planned one-off mineral extraction tax increase for natural gas production, which had been a concern. The positive news flow surrounding Gazprom continues.