United Russia: Still on a spending spree?

The failure of the United Russia Party to maintain it's super majority in the State Duma elections is not expected to derail plans for increased Government spending before the Presidential election in March.

United Russia has 49.5% of the vote. It will be joined by three other parties in the new Duma. The Communists with 19.2%, Just Russia with 13.2%, and Nationalist Vladimir Zhirinovsky's Liberal Democrats with 11.7%. 

The leading party, which is headed by Prime Minister Vladimir Putin, is supporting an increase in state employees’ wages and other areas to shore up support, according to some analysts.  

The planned budget shortfall of 1.6 percent of GDP in 2012 is more evidence of increased government spending. But Deputy Economy Minister Andrei Klepach says “Generally our policy for next year, despite the elections, will be very conservative and we’ll keep the budget deficit at about this level.”

Meanwhile Deputy Finance Minister Sergei Storchak said last month that the government plans to increase domestic borrowing by 50 percent to a record 59 billion dollars next year.

About 60 million people, or more than 40 percent of the population, are directly dependent on the state for pensions or employment. Something which Alfa Bank says, shows“budget policy is likely to maintain the present social focus.”

Andrew Vernikov, Deputy Director for investment analysis at Zerich Capital Management says the results of the vote are discouraging investors

“The Presidential party didn’t mange to gain the majority, which raise concerns over possible changes in the cabinet should Medvedev fail to become Prime Minister. This uncertainty is not welcomed by investors who are not sure about the future outcome”

Charles Robertson Global Chief Economist at Renaissance Capital says the last word will be left to the President regardless of the spending strategy, however if there is a “positive vote for the Communist party, a positive vote for more social spending, the market perception will be the higher spending from the government.”