EDB's researchers: If oil prices remain at the current level the CIS economy is expected to grow by 4.9% on average in 2012 and 5.2% in 2013
These conclusions are presented in the new issue of The CIS Macromonitor.
Almaty, 5 April 2011. While the growth of the global economy slowed down to 3.3% because of aggravating debt problems, increased turbulence in financial markets, and worsened economic situation in developed countries, the CIS economies speeded up their growth from 4.4% in 2010 to 4.6% in 2011. Therefore, the economic development of the CIS countries differs from the global trend. This conclusion is made in the new issue of The CIS Macromonitor published by the Research Department of the Eurasian Development Bank (EDB).
This dynamics was primarily backed by the growth in prices of raw materials and food supplies in 2011. This lead to significant increases in the trade surpluses of the region’s countries that are net exporters of raw materials, hence additional growth in their budget revenues and gold and foreign exchange reserves. On the other hand, the increased trade deficits of the countries that are net importers of oil products and food supplies were compensated, to a significant extent, by the growth in remittances from labour migrants. Therefore, the increases in remittances from the countries that export raw materials encouraged the advancement of the economies that export labour.
This risk-sharing mechanism made it possible for the CIS countries to mitigate the growing risks to a certain extent and withstand the slowdown of the global economy.
Among the 2011 results, EDB’s experts point out to the significant net outflow of capital from the region (over US $80 billion in 2011), a US $33 billion increase in the central banks’ foreign exchange reserves (about 1.5% of the region’s GDP), and an increase in lending in the national currency in Russia by 25% and in Kazakhstan by 21.5%. In addition, the pressure of inflation in the region has noticeably decreased. Armenia and Ukraine had the lowest inflation rates of 4.7% and 4.6% respectively. The recovery of the CIS economies had a favourable effect on their fiscal indicators. The debt burden has changed positively even in those countries that are characterised by an imbalance in public finance: the decrease in the foreign debt-to-GDP ratio in Kyrgyzstan, Tajikistan and Ukraine averaged 6 percentage points. Another distinctive feature of the past year was a record large harvest, which produced, against the «low-base» effect of the preceding year, a 20% weighted average growth in the region’s agriculture.
EBD’s experts note that «the main determinant of the advancement of the CIS economies is oil prices.» For this reason they provide two alternate scenarios of the economic development of the region based on different levels of oil prices. If oil prices remain at the current high level (US $115 per barrel) the region’s economy is expected to grow by 4.9% in 2012 on average and 5.2% in 2013.
The pessimistic scenario envisages a decrease in oil prices to US $90 per barrel on average in 2012 and 2013. This is expected to slow down the growth of the CIS economies to 3.2% and 3.9% respectively. According to EDB’s experts, this scenario is possible if global prices of raw materials go down because of factors such the debt crisis of the eurozone, a reduction in public spending and, consequently, a slowdown in the economic activity in the U.S., and a slowdown in the economic growth of China.
The research provides forecasts for the development of the CIS countries which analyse, in the first place, the most significant challenges they face.
In 2012 Azerbaijan may face a need of fiscal consolidation
in order to prevent the overheating of its economy and an excessive escalation
in prices. However, this may contradict the government’s plans for
Provided there are not destabilising shocks
In Belarus, the main threat to its stability is its still very significant current account deficit, which can range between US $2 billion and US $3 billion in 2012. The agreement with Gazprom to lower the gas price is the country’s chance to maintain its external balance next year. However, the stability of Belarusian external balance is extremely fragile. A premature weakening of the fiscal or monetary policy can make the 2011 events recur.
Despite the positive outlook for Kazakhstan’s economic growth (6.5% in 2012), its banking sector has not overcome its main problem: there has been no significant improvement in the banking sector’s loan portfolio as expected over the last several years. As at January 2012, second-tier banks’ non-performing loans accounted for more than a third of all loans provided (35.1%).
Kyrgyzstan’s budget deficit is forecasted at 5.1% of GDP in
Moldova’s economy can be exposed to significant effects of the recession in the eurozone since it is very close to Europe. In the first place, these will be an increased trade imbalance and lower receipts from labour migrants. However, anti-crisis measures are expected to produce a positive effect in 2013, with renewed accelerated growth.
The main factor that constrains Russia’s economic growth is
the relatively weak investment activity. If the uncertainty in the global
economic situation eases, investment activity and economic growth in Russia can
improve. In this scenario, EDB’s experts forecast the Russian economy to grow
by 5% in 2012 and 5.5% in 2013. However, if oil prices fall to US $90 per
barrel, the growth of the Russian economy is expected to slow down
International experts forecast the growth of Tajikistan’s GDP to slow down to 6% and inflation to approximate 8% in 2012. If the public sector continues to be stimulated while the external environment worsens, the inflation rate can possibly exceed 10% a year. Another problem of the economy is the growing foreign debt. The persistently high foreign trade imbalance is financed from external loans.
Turkmenistan’s economy is expected to continue to stably grow this year, with GDP growth averaging 9.1% and a decrease to 7% in 2013. However, despite high growth rates, Turkmenistan is dependant to a significant extent on gas exports, which make it economy vulnerable to external shocks. Natural gas accounts for about 90% of the country’s exports.
Uzbekistan’s economic growth is expected to remain stable, underpinned by the continuing growth of internal consumption and high prices in global commodity markets. In 2012 the GDP growth is expected to average 7.6%. In particular, agricultural production is expected to increase by 5.8% and capital investments 9.3%.
Ukraine’s economy is expected to keep its growth rates at the 2011 level if prices of exports such as metals, coal and agricultural produce remain high and the neighbouring economies develop in a stable fashion. The growth of Ukraine’s GDP by 4.8% this year is deemed a realistic forecast. However, the first months of the year showed signs that the economic dynamics has weakened. In particular, the industrial growth has slowed down drastically while inflation rates are more volatile compared to neighbouring countries (except, possibly, Belarus).
The
Additional Information
The 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. Read more at https://www.eabr.org.