Overall support for UR seems to have fallen by about 25% – the voter turnout of 60% implies that around 30% of all eligible voters cast their support for UR, down from 40% at the last election. However, UR will attain a simple majority in the Duma. Given that the votes of those parties that did not pass the 7% threshold will be distributed proportionally to parties represented in the Duma, UR will still attain a simple majority of about 53%.
This translates in a reduction of seats to 238, from 315, with the Communist Party getting the largest increase in seats, from 57 to 92.
The key dividing line in the new Duma may be between UR and the Communist Party. The strong showing of the Communist Party could be the result of its being the main receiver of any protest vote.
In addition, one might expect stronger pressure to maintain (or even increase) socially-related spending, especially in a global environment that will necessarily imply more challenging times for the Russian economy. Such a policy line, if implemented, could militate against the objective of consolidating fiscal policy, in particular as the break-even oil price has now shot up to $120 per barrel in 2012, from $50 a barrel in 2008.
Despite some suggestions to the contrary, we think the results might spur UR to pursue more reform-friendly policies.
As we have argued before, Russia will move from a position of twin surpluses to one of twin deficits by 2014. The prospects of twin deficits will pose an acute policy dilemma, as Russia will need to find ways to finance these gaps. We think the Kremlin may be at least starting to recognise the gravity of the issue, and the election results could force UR into action, as addressing this issue will be the only way to ensure continuously improving living standards.
Political stability and continuity may also be interpreted positively from a business perspective. Related to the need to address the transition from twin surpluses to twin deficits is the necessity of improving the business climate in order to attract the capital flows needed to finance the deficits.
The political continuity exemplified by the Duma election results may therefore facilitate this process.