EDB: The economic situation in the Bank's member states tends to normalise in Q3 2016
14 October 2016
Moscow, 14 October 2016. In Q3 2016, the tendencies in the Eurasian economies included the stabilisation of exchange rates and overall economic dynamics. This finding is suggested by The Macroeconomic Review prepared by the Chief Economist Group at Eurasian Development Bank (EDB).
The research points out that data for July-August 2016 show there are preconditions for a GDP growth in the EDB countries and that the real sector in Q3 can be supported by improvements in agriculture due to good harvests. Improvements have also been recorded in the transport sector, suggesting that economic recession in the EDB countries should be expected to slow down.[1]
EDB expects that the overall inflation in its member countries will go down from 12.8% in 2015 to 6.1% in 2016 and that the growth in consumer prices will decrease further to 4.8% and 4.2% in 2017 and 2018, respectively. According to the Bank's experts, in Russia inflation will be less than 6% by end-2016, while in 2017-2018 it will reach a new historical minimum and get close to the Central Bank's benchmark of 4%.
The authors suggest that world food and raw materials prices, as well as the stabilisation of the EDB countries’ exchange rates in Q2 and Q3 2016, help significantly to alleviate the inflation pressure. Compared to December 2015, the national currencies appreciated by the beginning of September 2016 in Russia, Armenia, and the Kyrgyz Republic. In Belarus and Kazakhstan the exchange rates, after having depreciated significantly in early 2016, have begun to recover starting from February and March. This is partly due to a slowdown in capital outflows from the EDB countries and will make it possible to restore their international reserves.
An important factor in the recovery of economic activity in some EDB countries was the growing exports, in the first place to Russia. These tendencies are analysed for Armenia and the Kyrgyz Republic in a special report within The Macroeconomic Review. In some instances, as in the case of Armenia, for example, the higher growth in exports could be partly explained by the depreciation of the national currencies. However, the example of the Kyrgyz Republic, which has demonstrated an increase in exports to the EAEU countries despite the som appreciation against the rouble, suggests that integration factors could also contribute.
Money remittances from Russia to other EDB countries continue to recover. The most recent official data (for Q2 2016) on migrants' remittances in US dollar terms suggest that this indicator has acquired a positive dynamics year-on-year. The Kyrgyz Republic where remittances increased by 22% year-on-year in Q2 2016 due, to a significant extent, to the preferential treatment granted to Kyrgyz labour migrants in the EAEU, is the main contributor to this trend in the region.
However, despite positive changes, some macroeconomic areas (the fiscal sphere in particular) continue to bear imbalance risks. Global risks associated with a slowdown in the Chinese economy, decreases in raw materials prices and the aggravating situation in the banking sectors of European countries, as well as an increase in the FRS' key rate, continue to be significant.
"Before the end of this year, the economic dynamics should be expected to normalise gradually, which will include the normalisation of rates (a gradual reduction from the highs of the several previous years) and the balance of payments due to a decrease in capital outflows," Chief Economist Yaroslav Lissovolik concludes. He believes that, "While the gradual softening of the monetary policies may give an additional impetus for economic recovery in the region, the key driver for possible accelerated recovery will still be structural reforms, including dividends the EDB countries can receive from economic integration."
Additional Information:
Eurasian Development Bank (EDB) 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 totals US $7 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.
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