The EDB Macroeconomic Review: Economies of Russia and Belarus Returned to Growth. Economies of Central Asian Countries and Armenia Maintain Steady Growth
Almaty, August 15, 2023. Analysts of the Eurasian Development Bank (EDB) presented another issue of the Macroeconomic Review for its six member states. A regular EDB's publication, the Macroeconomic Review provides a roundup of the macroeconomic situation and projects near-term developments in the member countries. The Review also contains detailed statistics on key macroeconomic indicators.
EDB economies continue to grow at a steady pace. According to preliminary estimates of the Bank's analysts, the aggregate GDP of the EDB member states increased by 1.8% yoy in the first half of 2023, following a 1.1% yoy decline in the region's economic activity in Q1 2023 and a 1.5% decline in 2022.
The dynamics of the aggregate GDP in the region was largely determined by the return to positive figures of the annual growth indicators in Russia and Belarus' economies. According to the Ministry of Economic Development, Russia's GDP increased by 1.4% yoy in the first six months of 2023, following a 1.8% yoy decline in Q1 2023. Belarus' GDP grew by 2% yoy in January-June after its 2% yoy decline in January-March. Both in Russia and Belarus, the increase in economic activity can be largely attributed to the successful adaptation of business and the population to new operational conditions. Another driver was the strong growth in domestic demand that occurred against the background of stimulating macroeconomic policies and the establishment of new supply chains. EDB analysts reckon that the year-to-date GDP growth in Russia and Belarus will continue to increase in the Q3 2023.
The economies of Central Asia and Armenia continued to expand steadily in Q2 2023. In the first six months of 2023, economic activity in Armenia increased by 11.4% yoy, while Kazakhstan’s GDP increased by 5% yoy, the Kyrgyz Republic’s by 3.9% yoy, and Tajikistan’s by 8.3% yoy. The expanding of domestic demand remained a source of increased business activity in both the consumer and investment segments. EDB analysts expect the economies of Central Asia and Armenia to maintain high growth rates in Q3 and Q4 2023.
The aggregate growth rate of consumer prices in the EDB member states was 4.5% year-on-year in June from 4.2% yoy in May. The Review highlights that inflation in the Bank's region of operations remained subdued in June-July 2023, but pro-inflationary risks increased in a number of countries.
In Russia, inflation accelerated from a local minimum of 2.3% year-on-year in April to 4.3% yoy in July. Price pressure has intensified due to the rapid expansion of domestic demand, the tight labor market, and the Russian ruble weakening pass-through to prices. Given the above, EDB analysts expect further acceleration of inflation in Russia in the second half of the year. Against the backdrop of the increasing price pressure, the Bank's experts believe that a second significant rate hike is likely to occur in September.
In Belarus, administrative price controls remain in place and are the key factor in curbing inflation. Nevertheless, once it hits the local minimums at about 2-2.5% yoy in Q3, inflation in Belarus is to increase by the end of the year due to the increase in costs experienced by producers of goods and services in the backdrop of positive output and wage gaps. The Bank's analysts also project an increase in the growth rate of consumer prices in Tajikistan in the second half of 2023 as the inflationary dynamics in the food and services segments reverse.
In Kazakhstan and the Kyrgyz Republic, a slowdown in inflationary processes is expected in the second half of 2023 in light of the weakened (compared to last year) pressure from the global food market and the stability of national currency exchange rates. The Bank's experts allow the possibility of starting rounds of key interest rate reduction by the National Banks of Kazakhstan and the Kyrgyz Republic, provided the inflation decreases.
Armenia became the only country in the region where in June-July 2023 consumer prices decreased compared to last year – by 0.5% and 0.1% yoy, respectively. The cheapening of imported food and fuel following the strengthening of the dram formed disinflationary pressure. In the second half of the year, inflation in Armenia will remain below the Central Bank's target of 4±1.5%, which will lead to the continuation of the refinancing rate reduction cycle.
EDB analysts note the continuing risks from the external sector to the economies of the Bank's region of operations. The Review adds that the steady price pressure remains in developed countries, while the world economy is losing momentum, stalling its growth while being accustomed to a new long-term mode of operation within higher interest rate environment. The Bank's analysts believe that the increased reliance on internal sources of growth offsets the negative impact that the external sector exerts on the economies of the EDB member states, but the global demand cooling will eventually be felt in the region as well.
The Macroeconomic Review is available on the Bank’s website.
Additional Information:
The Eurasian Development Bank (EDB) is an international financial institution promoting integration and development in its member countries. For more than 17 years, the Bank has worked to strengthen and expand economic ties and foster comprehensive development in its member countries. The EDB's charter capital totals US $7 billion. Its portfolio consists principally of projects with an integration effect in transport infrastructure, digital systems, green energy, agriculture, manufacturing, and mechanical engineering. The Bank’s operations are guided by the UN Sustainable Development Goals and ESG principles.
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