EDB researchers: the CIS economy showed a weaker investment demand and a slowdown in export orientated sectors in 2012
Almaty, 1 April 2013. A common trend in the economic development in the CIS region in 2012 was a reduction in investment demand and a slowdown in export orientated sectors. This conclusion is made in the new issue of The CIS Macromonitor published by the Research Department of Eurasian Development Bank (EDB). The growth in almost all CIS economies was driven by consumer demand and the sectors servicing it, primarily the trade and services sector.
The countries’ GDP was affected by a drastic fall in the growth of prices of oil, which remains a key export item of the CIS economies. Consequently, the aggregate GDP of the CIS countries grew by approximately 3.4% in real terms in 2012, which is significantly lower than the 4.7% in 2011. Azerbaijan, Armenia and Tajikistan showed a higher growth while larger economies such as Russia, Kazakhstan, Belarus and Ukraine demonstrated a noticeable weakening of the economic dynamics.
Azerbaijan’s GDP grew by 2.2% in real terms in 2012. A noticeable fact is that despite a 5.1% decrease in production in the mining sectors other sectors not associated with oil and gas have had a stable and high growth.
Armenia’s economy increase by 7.2% in real terms in 2012. Its industrial output grew by 8.8%, agriculture 9.5%, trade 3.6% and the services sector 10.8%. This high growth was due to the restored domestic consumer demand, the foreign demand for exported metals and the weather conditions favourable for agriculture. «If the growth in industrial output and exports is maintained at a high rate in the first six months of 2013, it will be possible to expect a structural improvement in the country’s economy,» write EDB researchers.
The economic growth in Belarus remained low in 2012, standing at 1.5% at the year end. A drastic slowdown was demonstrated in the sectors working for domestic demand, in particular the investment one. Construction volumes decreased by 9.8%. At the same time, the processing sector, agriculture, transport and communications, which are to a significant extent orientated towards exports, have been growing at high rates. «A key task for Belarusian authorities today is to restore the stability of the country’s balance of payments,» consider EDB experts. «The country has limited international reserves and this threatens its overall economic stability.»
Kazakhstan’s economic growth in 2012 fell to 5% (against 7.5% in 2011) because of weaker foreign demand, technical difficulties in the oil sector and recession in agriculture. For the first time over the past five years the balance of payments had a negative value of US $2.8 billion
Kyrgyzstan’s economy weakened in 2012. Its GDP fell by 0.9% as a result of the negative shock associated with the problems with the Kumtor gold mining company, which accounts for about 40% of the country’s industrial output. Because of economic recession the country’s tax revenues have reduced significantly and that made it necessary to carry over some governmental expenses. The Bank’s researchers believe that this year the Kyrgyz GDP will show a high growth at approximately 7.9%. In the longer run, «the main risk for the country’s economic stability is the existing high foreign debt.»
Moldova’s GDP decreased by 0.8% in 2012 for two reasons: drought and the Euro zone crisis. Agricultural production fell by 22.4% compared to 2011 and industrial output by 3.1%. However, as the report states, «the coordinated macroeconomic policy pursued by the government and the central bank made it possible to maintain economic stability.»
The growth of Russia’s GDP slowed down to 3.4% in 2012 against 4.3% in 2011. EDB experts attribute this to a number of factors. The foreign demand for Russian exports has reduced, primarily because of the debt crisis in the Euro zone. The unfavourable external environment constrained private investment activities. Finally, weather conditions caused a fall in agricultural production. «Despite the current slowdown in GDP and the existence of serious external risks, the projections for the country’s economic development in 2013 do not raise significant concern. The economy will be able to return to higher growth at a later date, when the external situation improves.»
The economic growth in Tajikistan stood at 7.5% in 2012, with all sectors showing significant improvement. However, as EDB researchers point out, the economic development model of the country has been characterised over the past ten years by a significant presence of the consumer sector while private investments remained very low. With a negative balance of foreign trade, the main source of finance for domestic demand are money transfers. «The previous economic model of Tajikistan offers limited opportunities for further growth and the country has faced a need to fulfil structural reforms, improve the investment climate and thereby promote domestic investment,» says the report.
Turkmenistan’s GDP grew by 11.1% in 2012. This was due to state investments, the strong consumer demand from households and the external demand for hydrocarbons from China and Iran. The investment policy aimed at economic diversification through the upgrade of production and the formation of new sectors (chemical and light industries, the production of building materials) and providing for the construction of infrastructure has helped to increase capital investments by 38%. «Having sufficient finance, the government will continue to pursue its investment policy aimed, in particular, at the expansion of gas export routes and transport corridors,» emphasise EDB experts.
The growth in Uzbekistan’s GDP was one of the highest in the region, standing at 8.2%. Capital investments increased by 11.6% in 2012 and amounted to 22.9% of GDP. «The strong domestic consumer and investment demand induced by the expansive budget policy, labour migrants» transfers and foreign investments and good weather conditions were the main drivers of the country’s economic growth," says the report. According to consensus projections, the economic growth in Uzbekistan will slow down in 2013, but it will remain at a level of 7.5%.
Ukraine’s GDP grew by 0.2% year-on-year, a sharp decrease on 2011 when it stood at 5.2%. The country’s international reserves have reduced significantly, to US $24.5 billion by the end of the year. «The Ukrainian economy remains fragile with respect to external shocks because of the significant trade deficit and the serious reduction in international reserves which happened in the past year,» state EDB researchers.
The electronic version of the publication is available at EDB’s website.
Additional Information
Eurasian Development Bank is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth and the expansion of mutual trade and other economic ties in its member states. EDB’s charter capital exceeds US $1.5 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan. Read more at https://www.eabr.org.