Russia's Leadership 'Could Hinge on Economy'
As Russia's economic growth slows, analysts and business leaders have warned of deep and wide-reaching political consequences if the situation deteriorates further.
Speculation about a growing rift between President Vladimir Putin and Prime Minister Dmitry Medvedev have been fueled by concerns about the country's economy, which were exasperated by economic data released on Monday.
HSBC's Russia purchasing managers' index (PMI) survey showed that manufacturing activity in May was the weakest in five months, falling to 50.4 in May from 50.6 in April. The data also revealed that firms had cut staff for the seventh month in a row.
"Manufacturing has continued gradually losing growth momentum," Alexander Morozov, chief economist for Russia at HSBC in Moscow, said in a statement. "Intakes of new orders were getting weaker, laying down the ground for preservation of conservative business expectations and restrained output growth."
It follows a slowdown for five consecutive quarters which prompted Russia's economic ministry to cut the country's growth forecasts for 2013 in April, from 3.6 percent to 2.4 percent. Over-reliant on its gas and oil industry, the world's largest oil producer has also been hit by a decline in the commodity's price as it struggles to diversify its economy.
These economic woes have drawn attention to the apparent differences of opinion between the country's president and prime minister. Putin, who would like to see looser fiscal policy to promote growth, has appeared to grow increasingly impatient with Medvedev, whose government imposed limits on spending and borrowing in 2012 and said they would stick to them despite the slowdown.
'This Time It's Different'
Marcus Svedberg, chief economist at independent asset manager East Capital, told CNBC that rumors about a rift between Putin and Medvedev had been going on for so long, one could be forgiven for ignoring it - until now.
"The tandem has been declared dead so many times that one may be excused for not paying too much attention. But this time may be different," Svedberg said last week.
"Medvedev has lost popular support, his approval ratings have dropped, and is increasingly marginalized at the top. Putin has openly criticized the government, has fired several key people in the government and is more directly involved in government business – all serving to undermine Medvedev."
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He said there was plenty of speculation that Medvedev would be replaced. "Possibly by former Finance Minister Kudrin, which would be market positive. Medvedev may be number two in the formal hierarchy, but is clearly dispensable in the actual power structure."
Talk of a rift intensified in April when a video came to light showing the president berating senior ministers within Medvedev's government. He slammed their "worthless" work on social spending and failure to present a program for diversifying the country's economy.
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It comes as a survey published by a government-run agency revealed a schism in voter loyalty towards the leaders that could render Medvedev vulnerable. The Russia Public Opinion Research Center found that 52 percent of the electorate trusted Putin, while only 17 percent trusted Medvedev.
Meanwhile, on Friday it was reported that Putin planned to make Economy Minister Andrei Belousov his chief economic advisor, a move that would see Putin consolidating the group of powerful officials around him in the Kremlin, and effectively reduce Medvedev's role to one of a "technocrat" prime minister, with no strategic control over policy, analysts told Reuters.
Russian Business Not Convinced
Russia's business leaders are not convinced that Putin will get rid of Medvedev, however, unless the economic situation deteriorates.
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"There is a lot of speculation and different opinions about whether there is a rift between the leaders. Personally, I believe that there will be no changes for now, but the recould be later on," Nikolay Katorzhnov, chief executive of Russia's sixth largest financial group Otkritie Capital,told CNBC on Tuesday.
"Putin asked Medvedev to present his economic plan to him - and how he will fulfill Putin's economic aims- in May which I think is a sign that there won't be changes right now, but if those economic plans aren't fulfilled, there could be changes."
Andrey Kostin, the chief executive and chairman of VTB Bank agreed that the government was stable, an opinion that chimes with the Russian state which has repeatedly quashed rumors of a rift between the Kremlin and government.
"I don't think we can expect a change of government in the near-future. Putin had a five-hour direct line with the country and expressed that he was pretty satisfied with the government's activity - but on the other hand, he was very critical about certain things," Kostin told CNBC last week.
"Putin said twelve months was enough for the government to finalize the preparatory work to deliver more economic results…and the results are not bad. Yes, some ministers sometimes make some awkward statements and they might go, but who knows? We have to wait and see."