EDB researchers: The growth of the CIS economies continue to slow down in Q2 2013

Almaty, 1 October 2013. The aggregate GDP of the CIS countries in Q2 2013 grew by 1.4%, which is significantly lower than in the past year (4%) and the preceding quarter (1.7%). This conclusion is made in the new issue of The CIS Macromonitor published by Eurasian Development Bank’s (EDB) Research Department.

The EDB researchers note that the slowdown in industrial production has reached its bottom. The reduction in this quarter was the same as in the previous one (-0.2%). The retailing and services sectors have been for the first time affected by recession in other sectors and this suggests that the consumer activity has also weakened. The investment activities have also slowed down, affecting the construction and financial sectors.

In Azerbaijan, however, the economy showed a higher growth in Q2. Over the first six months the country’s GDP increased by 5% year-on-year. In Q1 this indicator stood at 3.1%. The main contribution to this increase was a slowed down recession in the oil and gas sector: production here decreased by 0.3%, compared to 4% in Q1. The growth in non-oil and gas sectors has decreased insignificantly and reached 10.9% over the first six months of the year. Yet, the economic dynamics beyond the oil and gas sector remains strong: the year-on-year growth over the first six months reached 22.9% in construction, 24.6% in the manufacture of construction materials and 21% in metallurgy.

The growth of Armenia’s GDP in the first six months decreased to 3.5%. The weak foreign demand resulted in almost a zero growth in the processing sector (0.2%), which had a negative compensation effect on the preserved growth in mining (10.2%). A recession in the power sector (-12%) has aggravated the situation in industrial production. The low investment activity has contributed to a slowdown in construction (-21.4%). Armenia’s foreign trade indicators continued to worsen in Q2, as confirmed by the ongoing reduction in gross international reserves and the depreciation of the dram. The slowdown in economic activities did not affect the stability of public finance. In the first six months public revenues increased by 20.4% and expenditure by 8% year-on-year. As a result, the public budget had a surplus of 1.6% of GDP.

Belarus’ GDP in Q2 reduced by 0.5% year-on-year. Industrial production fell by 7.2%. This means that the country’s economy has regained negative growth after a 3.8% increase in GDP in Q1, compared year-on-year. The growth of GDP in the first six months was 1.4%. The balance of payments improved compared to Q1, when the current account deficit reached US $2.5 billion or 17.1% of GDP. In Q2 this indicator stood at US $0.6 billion or 3.3% of GDP. The EDB researchers deem that the situation with public finance in Belarus is relatively stable. In the first six months the budget surplus was 0.3% of GDP.

The growth of Kazakhstan’s GDP in Q2 2013 improved to 5.5% (4.6% in Q1), resulting in a 5.1% increase over the first six months of the year. However, the country’s balance of payments has deteriorated. Because of a reduction in prices and weaker demand for exports (exports fell by 12% in the first six months) and as a result of the growing capital outflows, the balance of payments had a negative value of US $284.5 million (0.3% of GDP). At the same time, the EDB researchers deem that Kazakhstan can see its GDP growing in Q3.

In Kyrgyzstan the GDP growth improved to 8.2% in Q2. Over the first eight months of the year the economic growth rates remained at 8%. The main contributor to this growth was the past-year low base for industrial growth. However, “given the current import growth rates, the foreign balance deficit is expected to remain very high because of the public budget deficit and the growing borrowings in the private sector,” states the report. “If the foreign sector deficit remains high, the foreign debt, which has already approximated the country’s annual GDP, can grow further.”

In Moldova, the annual GDP growth stood at 6.3% in Q2. According to the consensus forecast, the country’s GDP can grow by 3.5% in 2013.

In Russia the economic growth in Q2 continued to go down starting from spring 2012. The year-on-year GDP growth was 1.1%, compared to 1.6% in Q1. Over the first six months of the year, it was 1.4%. The EDB researchers point out that the recovery in extractive sectors has been neutralised by the reduced production in the processing industry. However, retailing and physical exports show the signs of recovery and growth in Q3. Investments have not changed their pattern to sustainable growth, but it is usually Q4 that makes a decisive contribution to their growth over a year. The overall economic statistics makes it possible to expect higher GDP growth in the second six months of the year.

Tajikistan’s economic growth in Q2 improved to 7.7% compared to 7.3% in Q1. The metallurgical sector has shown the signs of improvement, while the recession in the textiles industry has aggravated. The construction sector has demonstrated a significant growth of 50%. The public budget in the reporting quarter had a surplus of 0.4% of GDP. “The overheated banking sector is a concern,” states the report. “Given the foreign trade deficit standing at 47% of GDP, which is almost completely covered by money transfers, and the low level of currency reserves, a rapid increase in currency loans is associated with the risk that the economic situation will worsen.”

Turkmenistan’s GDP grew by 9.7% over the first six months of the year, due to higher growth in Q2 estimated at up to 10.2%. The country’s trade balance continue to have a surplus, thanks to growing natural gas prices, among other factors (by 7.4% in Q2). According to the revised consensus forecast, the growth in Turkmenistan’s GDP can reach 10% over the year.

In Uzbekistan, after a slowdown in economic activities in Q1 (7.5%), in Q2 the growth of GDP reached 8.5% year-on-year. Over the first six months of the year, the GDP growth was 8% due to an increase in investments (10.5% year-on-year) and real incomes of the population (16.3%). All sectors of the economy have demonstrated an improvement, which contributed to this growth. The development of the country’s export potential and the increase in prices of exported raw materials ensured a growth in exports by 11.4%.

Ukraine’s GDP in Q2 reduced by 1.1% compared year-on-year. The industrial sector has demonstrated a deeper recession, having reduced its production by 5.3% over the first six months of the year. Construction volumes decreased by 19.2%. The public budget deficit was 3.5% of GDP over the first six months compared to 1% in the first six months of 2012. “The growth in the public finance deficit this year is the main risk for the Ukrainian economy for the near future,” the EDB researchers emphasise. “In 2013 Ukraine’s public budget deficit can exceed 5% of GDP.”

The e-version of the report is available at the EDB 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.