How the U.S. Events May Affect the CIS Economies: Conclusions by EDB Experts

Almaty, 4 August 2011. The top news, the toughening up of the U.S. fiscal policy and the resulting slowdown in the global economy, China in particular, means a reduction in demand for raw materials, the CIS economies’ main exports. This will worsen indicators of the current account of the balance of payments, which may possibly be affected by decreases in oil prices. A cause for concern is that economic recovery in the region has not eliminated budget deficits yet, while rising global food prices and persistent excess liquidity make inflation the main challenge for macroeconomic regulation in the region.

This is discussed in the weekly macroeconomic review published by the Eurasian Development Bank’s (EDB) Research Division.

“While the U.S. and Europe are resolving their debt issues, some economies are gradually falling into recession and the world is still waiting for the reaction of the U.S. and Eurozone’s central banks,” notes Elvira Kurmanalieva, Head of the Country Research Division at the EDB. “However, the main structural problem in the global economy, huge government debts, remains unsolved. There is a need for a quick recipe of how to transfer riches from creditors to borrowers.”

The EDB experts deem the following to be the most significant current macroeconomic events in the region:

• In 2009-2010, the global government debt grew from 55% to 69% of the global GDP;
• Debates on lifting of the U.S. debt limit have ended. However, the economy demonstrates poor dynamics and outlooks by rating agencies are negative. The whole world is waiting for the reaction of the Federal Reserve System;
• The cost of debt service in Europe’s peripheral countries is growing against the backdrop of the U.S. events;
• China, India and Taiwan’s PMI went down in July;
• The Customs Union countries declared a moratorium on changes in import duties before 2012;
• According to preliminary data, Russia’s inflation in July 2011 was zero and the annual percent change was 9%. During the first six months of 2011, its M2 money supply increased by 3.7%;
• Kazakhstan’s inflation was 0.5% in July and the annual price change was 8.8%;
• Global oil prices at the close of trading on 2 August 2011: oil futures for the next month delivery settled at $116.46 a barrel (-1.54% over a week) for ICE Brent crude at InterContinental Exchange Futures Europe in London, and $93.79 a barrel (-5.82% over a week) of light, sweet crude oil at New York Mercantile Exchange in New York; and
• Gold prices at the close of trading on 26 July 2011: gold futures for the next month delivery settled at $1,641.9 per ounce (+1.55% over a week) at COMEX in New York.