The EDB Macroeconomic Review: Strong growth of the region's economies, slowdown in inflation

11 July 2023

The Eurasian Development Bank (EDB) has released the latest issue of the Macroeconomic Review for its six member states. This regular publication 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.

Almaty, 11 July 2023. EDB economies are experiencing robust growth. Analysts note that domestic sources prompted a 1.1% year-on-year GDP growth in EAEU member states during January–May 2023, following a 1.5% decline in 2022. The Macroeconomic Review attributes this strong performance to the economies’ relatively swift adaptation to changes in the operating environment in 2022 and the implementation of fiscal support measures in certain countries. Russia and Belarus have shown positive developments in the first five months of 2023, with GDP increasing by 0.6 and 0.9% year-on-year, respectively. Central Asia and Armenia have continued to demonstrate strong economic activity this year, driven by higher domestic demand. In the first five months of 2023, Armenia’s GDP increased by 12.5% year-on-year, Kazakhstan’s by 4.5%, the Kyrgyz Republic’s by 3.4%, and Tajikistan’s by 8.2% in Q1 2023.

EDB analysts note that inflation in the region has passed its peak, slowing to 4.2% year-on-year in May 2023 from 12.4% year-on-year in December 2022. In Belarus, Russia, and Tajikistan, inflation is below target, while Armenia experienced deflation in June. Kazakhstan has witnessed a slowdown in price growth for the fourth consecutive month. This trend can be attributed to the diminishing effects of the previous year’s shocks and, in certain countries, currency appreciation and administrative price controls.

The Macroeconomic Review highlights that the easing price pressures in the region are creating an opportunity for central and national banks to lower their key rates. The National Bank of Belarus has already made five cuts to its refinancing rate in the first half of 2023, reducing it from 11.5% at the beginning of the year to 9.5% in early July. In June, the Central Bank of Armenia lowered its refinancing rate by 25 basis points to 10.5%. If consumer price growth in Kazakhstan continues to steadily decline, the monetary regulator may initiate a cycle of base rate cuts in Q3 2023. Estimates suggest that the base rate could be reduced approximately to 15% by year-end. At the same time, EDB analysts note that the significant depreciation of the Russian rouble in the second half of June and early July has significantly increased the likelihood of a key rate increase by the Bank of Russia in July. They emphasise that the balance of risks for inflation has shifted towards pro-inflationary risks and acknowledge the possibility of a 50–75 basis point increase in the key rate in July, raising it to 8–8.25%.

EDB researchers also note that rising interest rates in developed countries are hampering business activity, and this impact is becoming increasingly evident. The previously mentioned recession risks for the US and EU economies are high and are expected to push developed world authorities to ease their monetary policies. The Macroeconomic Review adds that reduced global demand will constrain economic growth in EDB operating countries, especially those that rely on commodity exports. The negative impact will be partly offset by growth in mutual operations. In addition, rapid adaptation to external restrictions, as well as monetary and fiscal support, will stimulate growth by expanding domestic demand.

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

Additional Information:

The Eurasian Development Bank (EDB) is an international financial institution investing in Eurasia. 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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