New EBRD Economic Forecast Slashes Predictions of Growth for Kazakhstan, Foresees Contraction on Average across ERBD Regions

GAITHERSBURG, MD – The European Bank for Reconstruction and Development (EBRD) issued revised economic forecasts on Jan. 19, foreseeing a contraction in the Russian economy of 5 percent, rather than the 0.2 percent envisioned in September, and downscaling predictions for Kazakhstan’s growth from 5.1 percent in September to 1.5 percent, based largely on falling oil prices and the decreased value of the rouble.
imageThe EBRD now predicts a contraction of 0.3 percent across EBRD regions, rather than the previously predicted growth of 1.7 percent. Growth in Central Asia is expected to decelerate significantly because of the region’s strong economic ties with Russia and other external factors, the report said. However, no country in Central Asia is predicted to see a contraction, and Uzbekistan’s growth rate has even been revised upward.
The economic contractions are being blamed on low oil prices, which have fallen to less than half of what they were in June, as well as the impact of Western sanctions on Russia and Russia’s counter-sanctions. And even this forecast is “subject to considerable risks,” said Hans Peter Lankes, acting EBRD chief economist, as reported by the EBRD. Those risks include additional drops in the price of oil, an escalation in the crisis in Ukraine and instability in the eurozone. “A deepening liquidity crunch in Russia would in turn have significant contagion effects for the economies in EEC [Eastern Europe and the Caucasus] and Central Asia,” the report reads.
Kazakhstan, as an energy exporter, has already begun to feel the pinch of falling prices and announced measures to stabilise its economy in November and December, including dipping into its National Fund for $542.6 million in 2015 and 2016 to support business activities in the country and $3 billion a year from 2015 – 2017 to develop transport, energy, industrial and social infrastructure under the Nurly Zhol new economic policy. These expenditures are expected to be accompanied by investment from other international organisations. President Nursultan Nazarbayev also announced earlier in January that the country would go into “economy mode,” including freezing some scheduled new construction activities and focusing only on completing the ongoing projects.
These measures, including the Nurly Zhol policy, with its major infrastructure investment, are expected by the EBRD to “help mitigate the fallout from the difficult external environment.” The report calculated inflation in the country at 6.7 percent in 2014 and predicts an inflation rate of 6.5 percent for this year.
Kazakhstan was called out once again for its 30 percent non-performing loan rate, which the EBRD cites as an obstacle to credit recovery.
The tumbling rouble, which has lost almost half its value against the dollar in one year, is also putting pressure on currencies in the region, the EBRD reported, with Belarus, Turkmenistan and Armenia seeing the sharpest declines. Kazakhstan has so far insisted that there will be no new tenge devaluations so soon after the February 2014 devaluation of 19 percent; however, the new EBRD report says the tenge “can be expected to depreciate, combined with the change in exchange rate regime from the current fixed rate regime to a (managed) floating, along with inflation targeting.”
The EBRD is now predicting an economic contraction of 1.5 percent in Belarus, one partner in the Eurasian Economic Union, along with Kazakhstan, Russia and Armenia. Armenia’s economy is now being predicted to stagnate this year, whereas in September 2014, it was predicted to grow at 3.5 percent. Armenia and Kazakhstan in particular have seen domestic producers and exporters hurt by falling prices in Russia and may soon take steps to protect key industries, despite the launch of the new EEU.
Low oil prices are predicted to benefit some energy importing countries, including Jordan, Morocco, the Kyrgyz Republic, Cyprus and Turkey. “Commodity importing countries will see a modest pickup in growth from 2.1 per cent in 2014 to 2.4 percent in 2015,” the report reads. “But even for energy importers in eastern Europe, the Caucasus and Central Asia, the oil price fall is a mixed blessing, as benefits are being outweighed by lower export demand and remittances from a weakened Russia.”

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