EDB researchers: The global economy evolves in a fashion which is favourable for the CIS economies
The key negative factor is the sharp aggravation of political risks in the region.
Almaty, 12 May 2014. The situation in the global economy evolves in a fashion which is relatively favourable for the CIS countries. This finding is suggested in the new issue of The CIS Macromonitor published by Eurasian Development Bank’s (EDB) Research Department. The increased growth in the global GDP (from 3% in 2013 to 3.5% in 2014), the recovered growth in developed countries and the high economic growth in China scale up the physical demand for primary exports from the CIS and limit the potential cuts in their prices.
The Bank researchers note, however, that despite the relatively favourable situation in foreign trade the key negative factor was the sharp aggravation of political risks in the region because of Ukrainian events. “In spite of the fact that, at present, their impact on the region’s economies (except Ukraine itself) is moderate, this is noticeable,” states the publication. “In particular, the growing uncertainty and the worsened access to international financial markets affect investment activities.”
In this connection the researchers believe that, according to a consensus forecast, the aggregate GDP of the CIS economies will grow by 3% in 2014, but these forecasts are in the process of continuous downgrading. However, the scenarios for most of the countries do not envisage a negative growth, in particular because these economies are far from overheating.
The CIS Macromonitor also analyses the results of and prospects for economic development in the region.
According to the researchers, the main economic determinants in Azerbaijan were the discontinued decline in oil production, the construction boom, and the worsened budget balance and balance of foreign trade. The stabilised oil sector continues to trigger economic development in the country.
Armenia will see an increased GDP growth and limited inflation in 2014, the Bank’s researchers believe. Although in Q1 the GDP growth will continue to be low, it will then speed up because of the favourable external situation, the recovery of investment activities, the expansion of fiscal policies, and the high level of money transfers. EDB forecasts GDP to grow by 4.8% by year-end (the government expects the growth to stand at 5.2%).
In Belarus export prospects are uncertain and depend, to a significant extent, on the economic situation in Russia. In the first months of 2014 the economic growth was negative. The GDP growth is expected to improve, yet the target of 3.3% seems to be hard to achieve. The current annual inflation rate (15.7% in February) is considerably higher than the 2014 target (11%). Public finance improved in January and February and the national budget had a surplus of 1.6% of GDP (according to the Ministry of Finance). The situation with external stability has remained unchanged, however. The reduction in the country’s international reserves to a level comparable with the end of 2010 suggests that the country has limited resources to support its economy in the current path. At the same time, the Belarussian economy has begun to demonstrate the signs of limited consolidation of its balance of payments.
In Kazakhstan, the EDB researchers see favourable growth signs, although economic activities in the country continued to slow down in February. The growth in the short-term economic indicator reduced to minimal in the recent two years and was 2.3% compared to February 2013. The slowdown had place in all sectors, except construction and agriculture. Domestic demand, which began to weaken in Q4 2013, continued to go down. However, the situation is expected to improve beginning from Q2 2014 thanks to an expansion in fiscal incentives (including those relating to consumption and investments), which are expected to compensate the effects of the February devaluation, and the improving external competitiveness. EDB forecasts the GDP growth to reach 5.6% by year-end.
In Kyrgyzstan, the GDP growth continued to slow down in the winter of 2014. The Bank’s researchers forecast the GDP growth rates to go down to 5.8%, in particular because of weaker consumption caused by a reduction in money transfers from Russia, a slowdown in bank lending activities, and the devaluation of the Kyrgyz som, which causes inflation. Foreign trade and the current account will still be in deficit. Despite the fact that exports outpace imports, they remain dependent on international gold prices, which are forecasted to decrease in 2014.
Moldova’s economy boosted, according to the EDB experts, having overcome the recession of 2012, largely due to the growing production in agriculture. However, according to a consensus forecast offered by international organisations, the country’s GDP growth is expected to slow down to
The dynamics of the Russian economy in 2014 will be determined by the timeframes and the intensity of recovering investment activities, the reduced household consumption, a tougher budget policy, and instability in the consumption and investment markets. Public finance and the balance of payments are expected to improve this year. The authors of the report suggest that the economic situation gives reasons to forecast a
In Tajikistan GDP is expected to boost, while inflation will also increase. The non-manufacturing sectors remain the main growth driver. In January-February 2014, high growth was recorded in retailing, the services sector and agriculture, confirming the strong domestic consumer and investment demand, and an improvement in animal breeding activities. In 2014 the GDP growth is forecasted to remain high and will reach, according to a consensus forecast, 6.1% (the government expects it to stand at 7.5%). Yet, the economic situation continues to be increasingly uncertain. This is partially caused by the slowdown in growth rates in Russia, which is the main source of money transfers and an important trade partner. Another aggravating factor is the transport and energy dependence on Uzbekistan, given the complicated relationships with this country.
In Turkmenistan the
The short-term forecast for Uzbekistan’s economy remains positive. The country’s GDP growth continues to be high and, according to a revised consensus forecast, is expected to reach 7% in 2014 (the government expects 8.1%). The balance of payments should remain stable, given the administrative control of imports and the persistent stimulation of exports and import substitution, in particular by means of attracting foreign investment. The main risks are associated with the administrative nature of the economy (restrictions on foreign exchange transactions, domestic and foreign trade), which will remain unstable in the long term while measures to develop the business environment, SMEs and the private sector continue to be insufficient on the whole.
Ukraine may suffer a noticeable decline in its economic activities in 2014, according to the EDB researchers. The balance of payments may be affected by negative shocks. The significant devaluation of the hryvnia and the unstable political situation complicate the process of servicing foreign debts for the government, businesses and banks. The balance of payments may also be affected by the worsened terms of energy trade with Russia and the restricted access for Ukrainian producers to the Russian market, coupled with the possible reduction in incomes from agricultural exports (because of complicated preparations for seeding this year).
The e-version of the publication is available online.
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.