UniCredit:

"Event: Today Russian President Vladimir Putin delivered a short speech on the investment forum “Russia calling!” His speech lasted for only 20 minutes, which is less than usual for such occasions. The key takeaways from his speech are the following:

■  Despite certain economic challenges (only elevated inflation was mentioned as such a difficulty), Russian policies are aimed at providing solid fundamentals for longer-term growth. In particular, Mr. Putin highlighted a conservative budget policy via a commitment to the budget rule. He denied possible restrictions on cross-border capital flows.

■  Mr. Putin said that Russia is planning to intensify improvements in the business climate and suggested that rankings (presumably, he meant in various internationally recognized rankings) are not as important as the ease of doing business in practice.

■  Russia is planning to support the creation of a national payment system, various industrial and agricultural projects (via project finance and direct interest rate subsidies). Support can also be expected for sectors hit by sanctions, especially in the financial sector, via capital injections (by default to the state-owned banks).

■  Russia is planning to continue operating as an open economy and to continue following WTO rules, although it intends to use local currencies more intensively in international trade and transactions (as opposed to world reserve currencies). He regrets the imposition of sanctions by foreign countries.

Interpretation: In our view, Mr. Putin’s speech was aimed at pleasing both foreign investors (with the lines about prudent policies and capital movements) and domestic business (via promising support). The optimistic scenario evoked by his speech is one in which state-owned enterprises will become efficient drivers of the economy on the basis of direct state support and that current conditions have provided local businesses with an opportunity to improve positions in the domestic market. However, the downside to what has been said is that authorities are planning to rely less on international opinion concerning their performance. This contradicts May 2012 decrees, in which one of the KPIs was to improve its position in the World Bank’s Ease of Doing Business Index. With this speech, Mr. Putin effectively recognized that an improvement in relations with the West is not a goal in itself and that it will take time. This highlights his strong opposition to forced one-way concessions on the Russian side in the current situation.

Outlook: The speech was quite promising for those who believe in the Russian economy. However, we used to be quite conservative in our medium-term prospects on the basis of structural growth challenges (some of which are not related to any sanctions, e.g. multi-year underinvestment and worsening demographic conditions). A switch to a more optimistic outlook will depend on the results of reforms.

With this in mind, Putin’s speech seemed to imply that Russia is willing to presume its influence on international politics and, thus,  is not focusing on easy way out of the current situation. Therefore, obstacles to refinancing external debt and technological transfers will continue to grow. Together with weakening oil prices, this stance might put unexpected pressure on the local currency during at least the next six to nine months, implying that the RUB could weaken compared to what we now expect (37.3 in December 2014 assuming a strong EUR towards the end of the year). The market has yet to react to Mr. Putin’s speech."

Wladimir Wladimirowitsch Putin, Präsident der Russischen Föderation, http://www.shutterstock.com/...
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