Russian public disenchanted, ratings agency says

Frustration among the public in Russia may build ahead of the 2018 presidential contest as the government tries to adjust to low oil, a ratings agency said.

The United Russia party secured a majority of the votes cast during the weekend, building the political force for Russian President Vladimir Putin. The outcome offers tacit support for fiscal policies enacted under Putin that are meant to support an economy struggling under the dual strains of Western sanctions and lower crude oil prices.

"We think the government is sensitive to popular disenchantment over fiscal consolidation that was introduced in response to lower oil prices," Fitch Ratings said Tuesday. "It included real wage and pension cuts and reduced discretionary spending and subsidies."

The Central Bank of Russia last week cut its lending rate for the second time this year, adding that it's possible the economy moves out of recession this year, though growth in gross domestic product won't be any stronger than 1 percent next year.

The government already transferred $6 billion out of its reserve fund to cover a budget shortfall and, according to Fitch, that fund will be depleted by the end of 2017. Looking ahead, the ratings agency said budget tightening efforts won't be as robust as they've been this year as the deficit shrinks from 3.9 percent of GDP to 2.8 percent next year.

There are emerging risks for growing public frustration, however, ahead of the presidential elections in 2018. Some of that sentiment may be reflected in a low voter turnout during the weekend.

Rate cuts, meanwhile, were viewed as positive by Fitch and supports confidence that Russia will be able to navigate through the downturn in crude oil prices. Russia is a major oil producer and a suppressed market means problems for its economy.

The Central Bank of Russia based its latest forecast on oil priced around $40 per barrel. Fitch said it expects an average price for oil of $45 per barrel next year. Brent, the global benchmark price, was around $45.40 in early morning trading on Tuesday.