AKIPRESS.COM - The economies of Central Asia are showing strong resilience to the geopolitical adversities caused by Russia’s war on Ukraine, the European Bank for Reconstruction and Development (EBRD) reports in its latest Regional Economic Prospects today.
The EBRD is expecting the region’s GDP to grow by 4.3 per cent in 2022 and 4.9 per cent in 2023, which is an upward revision of its spring forecast.
Central Asian states, such as Kazakhstan and Turkmenistan, are enjoying record high oil and gas revenues as a result of elevated prices and increased export volumes. The Kyrgyz Republic, Tajikistan and Uzbekistan continue to receive substantial remittances from Russia, where the demand for migrant workers is growing dramatically. The region is also experiencing very strong growth in real wages and public revenues.
Many countries in Central Asia are benefiting from Russian households seeking to obtain international payment cards and place their foreign currency savings in Central Asia. Thousands of Russian speakers (from Belarus, Russia and Ukraine) are relocating and moving their businesses to Central Asia, taking advantage of special economic zones, such as Uzbekistan’s IT Park, created to capture digital nomads and exporters of IT services.
As a result, the region’s capital cities are experiencing a real estate boom, as well as strong expansion in hospitality and catering. Regional economies, such as Kazakhstan and the Kyrgyz Republic, are also benefiting from re-exports to Russia of computers, consumer electronics and home appliances, spare auto parts, and electrical and electronic components, often facilitated by small shuttle traders.
Regional currencies collapsed after Russia’s invasion of Ukraine but they have largely reverted to their pre-war values. Financial sector regulators brought in tougher compliance measures to reduce the risk of further collapses from any secondary sanctions.
The most urgent challenge all Central Asian economies are facing today is inflation and, in the slightly longer term, debt service costs. CPI inflation is in the 10-16 per cent range, way above the target corridors, which jeopardises the wellbeing of many households and puts structural reforms and fiscal consolidation measures at risk.
Reduced gas supplies from Russia and rising inflation worldwide will further slow growth in the EBRD regions next year. Therefore, GDP growth across the regions is forecast at 3.0 per cent, a downward revision of 1.7 per cent compared with the Bank’s previous report in May. This projection is subject to major downside risks should Russia’s war on Ukraine escalate or the volume of its gas exports reduce still further.
However, an upward revision to predicted growth this year is likely to deliver a gentler slowdown in real terms, with output next year a mere 0.2 per cent lower than forecast earlier this summer.
Output in the EBRD regions is now expected to grow by 2.4 per cent in 2022 after consumers in emerging Europe went on a post-pandemic spending spree in the first half of the year.
This temporarily boosted consumption despite a fall in real wages and led to a sharp widening of current account deficits in central Europe.
For 2023 the EBRD has lowered its forecast to a rebound of just 8 per cent from the more robust 25 per cent growth foreseen in the last report. The expectation then was that substantial recovery work would already be under way next year.