While Russians Watch World Cup, Government Hikes Pension Age and VAT

Emerging Market Economist, Emerginomics

Tatiana Orlova

Emerging Market Economist

Emerginomics

Macroeconomics

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<p>Russia did not seriously expect to win the World Cup. The government probably hoped to showcase the country's provinces rarely visited by foreigners and smash the stereotypes that have lingered since the Cold War era. Although the Russian team was eliminated at the quarter-final stage last weekend, the stadium in Sochi gave it an ovation in recognition that it had exceeded everyone's expectations.  A longer-lasting rise in inbound tourism thanks to a better image of Russia abroad would be a bonus that no one has seriously counted on, just like the impressive performance of the host football team. </p>
<p>Some of the recent macro statistics, such as the current account surplus and revised industrial production, have also surpassed expectations. Inflation dropped to a historic low in May, but economic growth this year may be close to potential. However, the rouble and local sovereign debt performed poorly in 2Q, swept away by outflows of investor funds.  As millions of Russians are preparing to travel abroad during the seasonal peak in outbound tourism, the downward pressure on the rouble is likely to continue. We expect the unfavourable seasonal influences and persistently low investor appetite for EM assets to outweigh the benign impact of high commodity prices on the rouble in 3Q 2018.</p>
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Russia did not seriously expect to win the World Cup. The government probably hoped to showcase the country's provinces rarely visited by foreigners and smash the stereotypes that have lingered since the Cold War era. Although the Russian team was eliminated at the quarter-final stage last weekend, the stadium in Sochi gave it an ovation in recognition that it had exceeded everyone's expectations.  A longer-lasting rise in inbound tourism thanks to a better image of Russia abroad would be a bonus that no one has seriously counted on, just like the impressive performance of the host football team. 
Some of the recent macro statistics, such as the current account surplus and revised industrial production, have also surpassed expectations. Inflation dropped to a historic low in May, but economic growth this year may be close to potential. However, the rouble and local sovereign debt performed poorly in 2Q, swept away by outflows of investor funds.  As millions of Russians are preparing to travel abroad during the seasonal peak in outbound tourism, the downward pressure on the rouble is likely to continue. We expect the unfavourable seasonal influences and persistently low investor appetite for EM assets to outweigh the benign impact of high commodity prices on the rouble in 3Q 2018.


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