The EDB improves its GDP growth projection for the member states to 4.2% in 2021

20 September 2021

The Eurasian Development Bank (EDB) has published its regular Macroeconomic Review with updated projections for the economic development of the Bank’s region of operations in 2021–2022. EDB analysts note that the Bank’s member economies have largely completed recovery from the 2020 downturn. As a result, economic growth rates have begun to shift towards moderate levels. In the baseline scenario, the EDB projects the region’s GDP to grow by 2.4% in 2021 and 2.8% in 2022. The analysts note that high inflationary pressures will persist. These are expected to ease as the strongest phase of the recovery in economic activity is completed and commodity prices stabilise. The EDB’s projections suggest that inflation in the Bank’s member states will slow from 7.4% in August to 6.8% by the end of 2021 and approach target levels during 2022. 

Moscow, 20 September 2021. The Eurasian Development Bank (EDB) has updated its Macroeconomic Forecast for 2021 and 2022. The Bank’s analysts note that the global economy has generally been moving along the expected trajectory in recent months. Global business activity continues to rise, although operational indicators suggest a slowdown. EDB analysts estimate that the strongest phase of the post-pandemic recovery in the world’s major economies is over and growth will gradually slow down. With the expected oil supply build-up, the EDB baseline scenario expects a reduction in the Urals oil price from the current levels near US $70 per barrel to an average of US $66 over 2022.

Global inflationary pressures remain high. Delayed supplies and higher raw material prices continue to affect prices. However, as the global economy passes the peak of recovery and provided that the pandemic developments are under control, inflationary pressures may gradually subside. In the baseline scenario, the EDB projects a slowdown in inflation in the U.S. and its return to the 2–3% year-on-year range in the second half of 2022. The analysts believe that the Fed will start to cut asset purchases in late 2021 or early 2022, but do not expect the federal funds rate to be raised until late 2022.

Ruslan Dalenov, Vice Chairman of the EDB Management Board, presented the Bank’s vision for economic growth in the region:

“In the baseline scenario, we project a 4.2% GDP growth for the Bank’s member states by the end of 2021, following a decline of 2.9% in 2020. In 2022, we expect the region’s economy to grow by 2.8%. Growth will remain above potential as Russia and Kazakhstan still have a room to ramp up oil production and the activity in services is expected to intensify as restrictions are eased and vaccination campaigns progress.”

“Economic developments in the Bank’s member states remain generally in line with the EDB’s expectations,” said Evgeny Vinokurov, Chief Economist at the EDB and the EFSD. “The region’s economy has, for the most part, recovered from last year’s downturn. The monetary and fiscal support for business activity gets reduced against this backdrop. As a result, GDP growth rates in most of the region are beginning to slow down to a more balanced pace after having peaked in Q2 2021. Once the active phase of the recovery is completed, it is essential to sustain economic growth and increase its potential. There is reason to believe that a new investment cycle is beginning globally and in the EDB member states. The public authorities of the Bank’s member countries are now actively working to promote capital expenditures. These measures include large-scale state programmes in Kazakhstan and national projects and the expected National Wealth Fund’s investments in infrastructure projects in Russia. To ensure sustainable economic growth, it is important to further improve the business climate and support private initiatives.”

The EDB’s baseline forecast suggests a gradual easing of inflationary pressures in the region. The analysts project inflation in the EDB member states to slow from 7.4% year-on-year in August to 6.8% by the end of 2021. In 2022, consumer price growth in most countries in the region is forecasted to be close to targets. As global commodity prices stabilize, supply chains get fixed and the pent-up demand released, inflation will slow down.

The EDB member states’ monetary regulators have raised key rates this year in the face of rising inflationary pressures. In Russia, the key rate has increased by 2.5 percentage points, to 6.75% since the beginning of the year. EDB analysts believe that the current rate hike cycle can end at 7%. As for Kazakhstan, Bank experts assess its monetary conditions as close to neutral and expect a base rate of 9.5–9.75% by the end of 2021. With the EDB-projected slowdown in inflation, rates in Russia and Kazakhstan can gradually decline in 2022.

The Macroeconomic Review notes that the projections remain highly uncertain. The key risk is still the development of the pandemic. Vaccination campaigns in the Bank’s member states are progressing, but still at a moderate pace. The region’s leaders are Kazakhstan and Russia, where more than 31% and 27% of the population, respectively, are fully vaccinated. In Belarus this rate is around 15%, in Tajikistan 11%, in Kyrgyzstan 8%, and in Armenia 4%. In comparison, almost 70% of the population are fully vaccinated in China, around 60% in the EU, and over 50% in the U.S. The EDB baseline scenario maintains an assumption that vaccination rates will go up in the Bank’s region of operations. Nevertheless, the risks of new upsurges of the disease persist.

EDB’s forecasts. Key macroeconomic indicators of the Bank’s member states (baseline scenario)

State

GDP

Inflation

(end of period)

Exchange rate to U.S. dollar

(the year’s average)

Interbank rate

(the year’s average)

2021

2022

2021

2022

2021

2022

2021

2022

EDB member states

4.2

2.8

6.8

4.5

Armenia

4.9

4.7

8.0

4.2

507

481

6.5

7.6

Belarus

2.5

0.4

9.2

6.5

2.55

2.67

8.6

9.1

Kazakhstan

4.0

4.2

7.9

6.0

425

434

8.8

8.9

Kyrgyzstan

3.8

5.1

7.4

4.6

84.5

84.1

5.3

6.4

Russia

4.3

2.7

6.3

4.1

73.7

72.4

5.5

6.3

Tajikistan

6.1

7.6

8.3

7.0

11.3

11.8

12.1

14.1

Note: GDP and inflation in % year-on-year; the exchange rate in national currency units per U.S. dollar; the interbank rate in % (the refinancing rate for Belarus and Tajikistan).

Source: EDB calculations

The Macroeconomic Review is available on the Bank’s website.

Other reports by the EDB and the EFSD are available in the Research section on the Bank’s website and the Publications section on the Fund’s website.

Additional Information:

The Eurasian Development Bank (EDB) is an international financial institution promoting integration and development in its member countries. For 15 years, the Bank has worked to strengthen and broaden economic ties and foster comprehensive development in its member countries – Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, Russia, and Tajikistan. The EDB's charter capital totals US $7 billion. The EDB’s portfolio mainly consists of projects with an integration effect in the areas of transport infrastructure, digitalisation, green energy, agriculture, industry, and mechanical engineering. The Bank adheres to the UN Sustainable Development Goals and ESG principles in its operations.

The Eurasian Fund for Stabilization and Development (EFSD) amounting to US$8.513 billion was formed on 9 June 2009 by the governments of the same six countries. The EFSD assists its member states in overcoming the consequences of the global financial crisis, ensuring their economic and financial stability, and fostering integration in the region. The EFSD member countries signed the Fund Management Agreement with Eurasian Development Bank giving it the role of the EFSD Resources Manager.

The EDB Media Centre:

Azima Sapargaliyeva +7 (777) 750 00 08 (Almaty)

Sergey Gorbachev +7 (916) 727 22 00 (Moscow)

pressa@eabr.org

www.eabr.org

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