EDB's analysts: CIS economy has been growing due to consumer and investment activity

CIS Macromonitor with assessment of economic indicators in the region has been published

Almaty city, July 30, 2012 — In the first quarter of this year CIS economy has kept the former rate of development — its growth in January-March this year amounted to 4.65%, slightly lower than in 2011 (4.67%). The growth of world economy was only 0.1% in the first quarter. This conclusion is in the quarterly CIS Macromonitor published by Research Department of Eurasian Development Bank (EDB).

EDB’s experts noted that this result is largely due to acceleration of Russian economy — from 4.1 to 4.9%. At the same time in regional group of countries — exporters of industrial goods (Ukraine, Belarus, Uzbekistan) there was a serious slowdown (from 6.9 to 3%), and in Kyrgyzstan — a sharp economic downturn (-6.8%). At the same time almost in all economies of regional countries there was a slowdown in industrial production (except of Armenia and Tajikistan) and simultaneous recovery in trade and services, resumption of growth in construction and banking sector which indicates an increase in consumption and investment activity in the region.

During the first quarter of this year as well as in previous periods, although significantly slowed down growth rates, high oil prices ensured growth of trade surplus of countries — exporters of oil (Russia, Kazakhstan, Azerbaijan, Turkmenistan). And countries — Importers of energy recorded growth of trade imbalances that were offset by inflows of remittances of individuals for a subgroup of countries — exporters of labor (Tajikistan, Kyrgyzstan, Moldova and Armenia). The peculiarity of this period for region’s counties is decline in inflation rates to record low levels. In general, inflation was 2.4%, in the region (excluding Belarus) well below last year’s figure (11.3%).

Results and prospects of economic development of individual countries in the region are also investigated in CIS Macromonitor.

In particular the Review noted that Azerbaijan’s GDP for the 1st quarter increased by only 0.5% of the corresponding period last year. Such low growth rates were the result of recession in oil and gas production (4.4%). Despite the annual growth in non-oil sector of the economy by 7.7% this decline has had a decisive influence on the overall economic performance that is due to the value for this industry of economy (59.3% of GDP).

In Armenia the GDP growth maintained momentum immature in the second half of last year — it has exceeded its level of the same period last year by 4.9%. And industry was the key driver, especially metallurgy (16.6%). At the same time decrease in inflation has continued, which reached minimum for 6 years (0.5% per annum). Notable progress has been made in the field of public finance — budget deficit fell to 0.2% of GDP. However, EDB’s experts say that in case of steady decline in prices for metals the country will lose almost the only active growth factor, which makes its economy vulnerable to effects of negative external factors.

CIS Macromonitor indicates that economy of Belarus demonstrated signs of completion of balance of payments crisis. This was aided by devaluation of Belarusian ruble by 24%. Inflation growth rates have been markedly slowed — since January, the index of consumer prices is rising by no more than 2% per month. Also for the first quarter balance of budget was formed with a surplus, amounting to 3.2% of GDP. Reserves of the country’s National Bank have increased more than 2 times (as at the end of March more than US $ 8 bn.) compared to spring 2011. However, EDB’s experts say that the reverse side of imbalances’ reduce in the economy was decline in consumption and investments. Falling investment in fixed assets amounted to 15.1%, households’ consumption and government expenditure decreased by 6.8 and 2.8%, respectively.

In Kazakhstan GDP growth slowed from 7.5 to 5.6% mainly due to the downturn in mining industry. At the same time manufacturing industry has shown rapid growth (8.6%). EDB’s experts expect real GDP growth over next two years at the level of 6—6.5%. At the same time domestic demand will become its main driving force. While sedation in world financial markets, increase in investment activity can be expected, provided that real incomes of private sector will continue to rise.

In Kyrgyzstan the decline in gold production by 63% at Kumtor field, which accounts for about 40% of industrial production in the country, has resulted to a slowdown in the economy at 6.8% in the first quarter as well as to worsening of balance of payments indicators. Reduced export of gold against background of rising prices for petroleum products formed deficit in the foreign trade amounting to 62% of GDP. Despite negative performances of industry, there is a reason to hope that the economy will keep positive growth rates this year, main forces of which will be trade, construction and services.

Moldova’s economic growth was 1% compared to the first quarter last year. This was due to the slowdown in consumption and exports, as well as weakening of investment activity. However, EDB’s experts point out, that negative phenomena in Moldova’s economy will not become of large-scale nature, as good budget and flexible policy towards the exchange rate provide the country with some cushion against impact of external shocks in the short term period of time.

CIS Macromonitor notes that «worsening of economic situation in the world had a limited effect on the growth of Russian economy». According to results of the first quarter they remained at the level reached in the 2nd half of last year. This figure was provided by high activity in the area of ​​private consumption (an increase by 7.2%), as well as by investments in fixed assets (15%). However, Russia’s economy continued to slowdown moderately in the industry, which is observed from the middle of last year. In case of external background improve or absence of further significant deterioration Russia’s economic growth may be accelerated to the end of this year, the main driver of which is investment activity of enterprises. Investment growth observed in recent years can provide GDP growth of 5% in the current year. If the adverse impact of external factors, the fall in prices for Russian export goods is stable, the country’s economic growth will slow to 2—3% as at year results.

The growth of Tajikistan’s economy in the 1st quarter of 2012 was 7.2%. At the same time industrial production grew by 14.6%, and faster rates (80%) were observed in textile and sewing industry. There was 1.2 times increase in cotton-fiber production, which allowed increasing of export of this product by 65.1%. However decline in prices for these raw materials on world markets has led to a decrease in export revenues by 24.9%. In general, decline in export prices and growth in import prices led to a deficit of trade balance of 50.3% of GDP.

In the first quarter of this year the economy of Turkmenistan continued to grow at double-digit rates. During the year the GDP growth was formed at 10.5%. Production of natural gas has increased by 19.1%. As a result, the country’s exports grew by 50.4%. At the same time there was a sharp increase in imports (45.2%) due to massive import of capital goods into the country under the government program of modernization and diversification.

A similar process of import growth was observed in the economy of Uzbekistan. In general, the growth of its GDP in the first quarter was 7.5% compared to the same period last year. Its main drivers are service sector, transport, communications and trade.

EDB’s experts also state that «after successful 2011 Ukrainian economy has dramatically slowed its momentum». At the end of 1st quarter its GDP grew by 2% compared with the corresponding period last year. The most significant inhibition was observed in manufacturing industry (0.2%) and construction (-3.1%). Export also showed negative growth (-6.8%). Fall in demand for Ukrainian steel products played a significant role in slowing rates of Ukraine’s economic development.

Summing up economic development of CIS countries in the first quarter of this year EDB’s experts left unchanged their forecast for economic development in 2012—2013. While maintaining high oil prices (at US $115 per barrel), economic growth will be 4.9% this year and 5.2% next year. Lower oil prices (US $ 90) will lead to slowdown up to 3.2% and 3.9%, respectively.

Electronic version of this publication can be found here.

Reference

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 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.

More information about EDB is available on https://www.eabr.org