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Macroeconomic Forecasts for 2021: Back to Growth

The Eurasian Development Bank (EDB) has published its Macroeconomic Forecasts for 2021.

The countries in the Bank’s region of operations have been hit by widescale social and economic shocks this year due to the COVID-19 pandemic. The Bank forecasts its member states’ aggregated GDP to contract by 3.8% in 2020 after a 1.7% increase in the previous year. The economy of Armenia will experience a 6.4% decline; the Belarus economy 1.5%; the Kazakhstan economy 3.0%; the Kyrgyzstan economy 7.5%; and the Russian economy 4%. In Tajikistan, economic growth will slow to 4.5%, down from 7.5% in 2019.

State economic support measures for both the population and business have been instrumental in helping contain the output decline in the region. Kazakhstan and Russia, which have significant fiscal reserves compared with the region as a whole, have introduced the most ambitious anti-crisis packages (about 8.7% and 4.5% of GDP, respectively). We believe this will make up for about 2–3% of GDP losses in Kazakhstan and 1.3–2.3% in Russia this year. Armenia has deployed significant socio-economic support (about 3.7% of GDP): this will soften the decline in the country’s output by about 1.8–2.2% in 2020. In Belarus, Kyrgyzstan and Tajikistan, the volume of state support is relatively small (about 1.1%, 2.4% and 2.5% of GDP, respectively), on account of limited fiscal reserves among other reasons.

EDB analysts believe that the pace at which the Bank’s member economies will recover from this year’s turmoil will largely depend on the future developments around the pandemic. The EDB baseline scenario is based on the assumption that the COVID-19 pandemic will slow down, with restrictive measures being eased both globally and in the countries of the EDB operating region in the first half of 2021. External demand will gradually expand for the EDB member countries in 2021. The average price of Urals crude oil is expected to reach USD 49 per barrel after a price of USD 41 in 2020.

The review notes that the easing of the lockdown will boost the recovery of consumer and investment activity in the countries of the EDB operating region in 2021. Stronger external demand and higher commodity prices will support exports. Most of the Bank’s member countries are expected to maintain a soft monetary policy in the coming year. This will be also conducive to economic recovery.

EDB analysts point to a number of factors that will constrain economic recovery in the region. The Bank’s baseline scenario suggests that sanitary restrictions will be eased gradually, and social distancing will remain part of daily life at least for the next year. Investment growth will be weak amid high uncertainty. Government support for the population and businesses through fiscal policies will be reduced.

The EDB projects growth in the economy of Armenia at 4.9% in 2021; that of Kazakhstan at 4.4%; that of Kyrgyzstan at 3.7%; that of Russia at 3.2%; and that of Tajikistan at 6.1%. Only Kazakhstan will experience a full GDP recovery in 2021 to the pre-crisis level of 4Q2019, as its decline in 2020 is estimated as relatively small. Armenia, Kyrgyzstan and Russia will reach their pre-crisis production level in the first half of 2022. The slow recovery is largely due to the high losses this year. In Belarus, GDP is expected to decrease by 0.1% in 2021 and its volume to reach the level of 4Q2019 only in the first half of 2023. Limited fiscal reserves, low investment demand and the unstable finances of the real sector will slow down the speed of recovery of the Belarusian economy.

Risks to the EDB baseline scenario remain heightened and skewed towards the downside.

“The history of economic crises shows that people always find ways to solve complex problems. The recession will be followed by a period of recovery. We expect most economies of the EDB operating region to return to growth in 2021. However, the uncertainty and risks are very high in the current environment. In the wake of high uncertainty, it is most important for the Bank’s member countries to maintain government support measures for the economy, especially for small and medium-sized businesses and employment, thus curbing the negative social and economic consequences of the pandemic to the extent possible. Achieving a stable growth trajectory while maintaining macroeconomic and debt stability is of particular relevance in the coming year. Even under a favorable scenario, an increase in the long-term economic growth rate of countries in the Bank’s operating region will require government measures aimed at overcoming structural constraints,” comments Evgeny Vinokurov, EDB and EFSD Chief Economist.

You can also view the Macroeconomic Forecasts on the EDB website.

Other reports and publications by the EDB and the EFSD are available in the Research section on the Bank’s website and the Research and Publications section on the Fund’s website.

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