If only the world economy could endure – Newspaper Kommersant No. 222 (7423) dated 11/30/2022

The Russian and Belarusian economies will face a fall in GDP this year – the reduction will be 3% and 4.6%, in 2023 the influence of the external sector and restrictions in logistics may weaken, which will lead to a smaller decline in the Russian Federation – by 2%, the economies of the rest countries of the EAEU will grow, according to the macro forecast of the Eurasian Development Bank (EDB). However, a more pronounced deterioration in the global economy than suggested by the baseline scenario could lead to an additional two percentage points contraction in the region’s GDP and limit the decline in inflation, which, in turn, will require a new cycle of rate hikes in the region.

The reduction of Russia’s GDP may amount to 3% this year and 2% next year, follows from the macro forecast of the Eurasian Development Bank. Belarus will also face a decline in GDP – by 4.6% this year with a return to growth of 0.3% next. Growth will continue to be limited by high uncertainty and risks, difficulties in the supply of investment and intermediate products and limited access to technology, a reduction in human capital and infrastructure restrictions, the bank says.

The rest of the EAEU countries will maintain growth – the economy of Kazakhstan may grow by 2.8% this year, next year – up to 4.2% against the backdrop of the implementation of state support measures, Armenia’s GDP will grow by 12.5%, and then slow down to 4.2% , Kyrgyzstan – by 3.1% in this and 3.5% in the next, Tajikistan – by 7.5% and 6.5%, respectively (the country is not part of the EAEU, but is a member of the bank). Growth in these countries will support an increase in domestic demand and prices for export goods. In general, in the region (due to the high weight of the Russian Federation), the decline this year is estimated at 2.3%.

The forecast assumes a slowdown in global economic growth and a temporary recession in developed countries – in particular, a reduction in US GDP next year by 0.3% with an increase of 2.7% in 2024, the euro area – by 0.6% with further growth by 2.1% — its recovery will be facilitated by the completion of cycles of monetary policy tightening. In China, growth will not exceed 4% for two years due to coronavirus restrictions and weakening business activity due to weakening external demand. As a result, global GDP growth will slow down from 2.4% in 2022 to 1.5% in 2023. The weakening of business activity in the coming months will not stop the increase in interest rates, the bank is waiting.

The EDB sees the most significant risk for the baseline scenario in a deeper and more protracted recession in the largest economies of the world, which could materialize if extremely high inflation in the world persists and an aggressive reaction from the central banks of developed countries. For the EAEU countries, this threatens to reduce demand for exports, which will exacerbate the decline in the region’s GDP next year to 3.3% (this is 2 p.p. deeper than the baseline forecast) and accelerate inflation to 8.3% through the depreciation of national currencies (in the baseline the average annual dollar exchange rate in 2023 is set at the level of 68.4 rubles), which will force the Bank of Russia to raise the rate to 10%.

In the base case, by the end of this year, aggregate inflation in the region is expected to be 13.1%, and in 2023 the figure may slow down to 6.2%. At the same time, both in the Russian Federation and in Kazakhstan, the cycles of easing the policy of central banks have already ended (at rates of 7.5% and 16%), but by the end of next year their level will be comparable – 7.5–8% and 14%, respectively, forecast in the EDB. The bank expects Russian inflation to slow down from 12.6% to 6% amid weakening pro-inflationary influence from the external sector and the adjustment of production and logistics chains. In Belarus, price growth will slow down from 15% to 8%, in Kazakhstan the figure will be 7.8% against 19%, in Kyrgyzstan – 5.2% against 14%, in Tajikistan – 6% against 6.9%, in Armenia inflation will decrease from 9.6% to 4.6%. At the same time, due to discrepancies in the real cost of lending between the Russian Federation and other member countries of the bank, interest in financing projects in the region with the involvement of Russian capital may grow, the EDB expects.

Tatyana Edovina