The EDB Macroeconomic Review: recession in the world’s biggest economies could be a new challenge for the region

13 September 2022

Moscow, 13 September 2022. The Eurasian Development Bank’s (EDB) analysts presented the latest issue of the Macroeconomic Review for the Bank’s six member states. The Macroeconomic Review is a regular publication by the EDB, which provides a snapshot of the macroeconomic situation in its member countries and assesses short-term developments. The review also contains detailed statistical information on key macroeconomic indicators.

In the first seven months of 2022, economic activity in the EDB region shrank by 0.7% year-on-year. The economies of Russia and Belarus continue to adjust to the new operating conditions, which takes time, while the Bank’s Central Asian member countries and Armenia have been maintaining high growth rates thanks to expanding domestic demand and high prices for key export commodities. 

The Macroeconomic Review notes diverging inflation trends in the EDB member states. In Russia, consumer price growth is slowing, approaching 14% year-on-year, but it continues to accelerate in most other countries of the Bank’s region. Different inflation trajectories make interest rates move in opposite directions. The Bank of Russia is consistently easing its monetary policy and its key rate is likely to fall to 7–7.5% as soon as September. By contrast, the central and national banks of Armenia, Kazakhstan and Tajikistan raised their interest rates in July and August and the National Bank of the Kyrgyz Republic kept it unchanged. Further cuts in the cost of credit in Russia, compared with other member economies, could stimulate capital inflows from Russia to these countries, which is expected to positively impact their economic growth.

Another observation highlighted in the Macroeconomic Review is the progressive abandonment of foreign currency denominated loans in the EDB member states. The share of such loans in the banking portfolios declined from 44.2% in December 2021 to 38.6% by the end of July 2022 in Armenia, from 45% to 42.4% in Belarus, from 10.3% to 9% in Kazakhstan, from 27.9% to 24.7% in the Kyrgyz Republic, from 10.8% to 8.1% in Russia, and from 32.9% to 27.6% in Tajikistan. The new levels are close to (or even lower than) the five-year lows. The decrease in the percentage of foreign currency denominated loans over the recent months has been supported by the national currencies’ appreciation against the dollar and, in Russia and Belarus, to a significant extent, by the conversion of the relevant liabilities into the national currencies.

The review also focuses on the impact of global economic trends on the region’s economy. The world’s economy is currently entering a period of serious stress. The global upsurge in inflation, which gained momentum back in 2021 when developed countries’ central banks and governments overstimulated their respective economies during the acute phase of the pandemic, has not subsided. 

To combat inflation, monetary regulators in the world’s major economies have been increasingly raising interest rates. This means that monetary support for economic activity is shrinking and the near future should bring about an opposite effect, with monetary policies starting to constrain economic growth. In fact, the central banks of developed countries are sacrificing economic growth in the short term. Against this background, EDB analysts believe that recession in the world’s major economies is currently the main scenario, which is very likely to materialise. The question is more about the scale and, above all, duration of the economic downturn. 

In the baseline scenario, EDB analysts expect the recession to be mild and last two to three quarters, with developed economies moving into recovery growth as early as the second half of 2023. However, it cannot be ruled out that monetary tightening will prolong the recession in the EU and the US for three to five quarters, until the end of 2023. 

Looking ahead to 2023, a recession in the world’s major economies could drive down global demand for the region’s exports (oil, gas, coal, and metals). Oil prices could well drop to US $60–70 per barrel and copper prices to US $5,000 per tonne – the lows recorded during the acute phase of the pandemic. Demand from the Chinese market will also decline. Perhaps, food is a commodity group, for which there is the least concern and we expect consistently high prices.

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 15 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 mainly consists 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. 

The EDB Media Centre: 

pressa@eabr.org

www.eabr.org

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