The slowdown in consumption in the Russian Federation can cool the economies of partners in the EAEU

The updated macro forecast of the Eurasian Development Bank (EDB) describes key economic trends in the EAEU countries and Tajikistan. Growth rates in the region’s small economies, driven both by a consumer boom due to increased migration and by shortages of goods on the Russian market, will gradually decline. The main factor for this will be the slowdown of the Russian economy against the backdrop of cooling consumption. The only exception to the “slowdown scenario” will be Kazakhstan, where steady growth in investment is expected. The EDB sees risks for the region in the deterioration of external market conditions and the possible strengthening of external restrictions on Russian trade.

The growth rates of Russia’s partner countries in the EAEU, as well as Tajikistan, will remain elevated at the end of 2023 – the economies, as last year, will be supported by migration inflows, increased remittances and investments, as well as increased supplies to the Russian market. These effects, however, will noticeably weaken next year following the cooling of the Russian economy, according to the updated macro forecast of the Eurasian Development Bank.

In general, growth in the EAEU countries and Tajikistan (these are the countries where the bank operates) will slow down from 3.4% to 2%. Armenia’s GDP growth next year will drop to 5.7% after 8.3% this year. In Kyrgyzstan, growth rates will slow down from 6.3% to 4.6%, in Tajikistan – from 8.2% to 7.3%. A slowdown is not expected in Kazakhstan – the economy is growing on an investment boom amid stimulating industrial policy measures. At the end of the year, this country’s GDP may grow by 4.8% after an increase of 3.2% a year earlier, then the growth rate will be about 5%, the EDB expects.

The Belarusian economy, after the shock associated with the breakdown of supply chains oriented to European markets, will grow by 3.9% this year, but in 2024 the figure will slow down to 2% – the increase in output is hampered, among other things, by a high level of capacity utilization and a reduction in the number of busy. In addition, a reduction in growth in the Russian Federation by 1 percentage point (pp) leads to a decrease in Belarusian GDP by 0.5–0.8 points.

The growth of the Russian economy, according to the EDB forecast, will be 3.1% this year, and will slow down to 1.5% next year; this will occur in the context of weakening consumption against the backdrop of an increase in the Central Bank rate. Going forward, the growth rate will be around 2% (assuming there are no new shocks). GDP growth in the third quarter was 5.5% higher than the level of the fourth quarter of 2021, while the contribution of industry to GDP growth over ten months is estimated at about 0.8 percentage points.

At the end of the year, the rate of price growth in the Russian Federation may reach 7.9%. Inflation will begin to decline in the first half of next year, although this will be hampered by pressure from the labor market. Nevertheless, by the end of the year the figure will slow down to 5.4%, and the Central Bank will begin to reduce rates from the middle of the year, the EDB predicts. Export revenues may increase next year, while imports may decline slightly due to a slowdown in consumption (high rates encourage the population to save more). This assessment comes with risks of weaker global growth – China’s GDP growth next year, according to the bank’s forecast, will slow from 5.6% to 4.3%. Another risk is the possible expansion of external restrictions on trade in the Russian Federation.

The trend towards a decline in economic activity in the world is not only not complete, but also has the prerequisites for strengthening – adaptation in 2024–2026 to higher, “normal”, that is, non-zero, rates will be accompanied by weaker growth of the global economy, believes the chief macroeconomist of the EDB Evgeny Vinokurov. The economies of the region where the bank operates depend on the export of downstream products (oil, gas, metals, food), the price environment for which remains favorable. “In the base scenario, we believe that prices will not fall much – the Brent price is set at a level below $80 per barrel, but there is always the possibility of risk scenarios being realized,” the economist warns.

Tatyana Edovina, Almaty