EAEU countries: economic outlook improves

_ Yaroslav Lisovolik, PhD (Economics), chief economist EDB. EDB Macroreview (August 2017). Moscow, 28 August 2017.

The recovery in global commodity prices as well as the weakening currency imbalances had a positive effect on EAEU countries’ foreign trade flows. Whereas 1Q 2016 saw falling exports of goods and services in all EAEU countries except Armenia, positive growth in exports was demonstrated by all EAEU countries this year.

Remittances coming off the back of revived economic activity in Russia contributed to improving the current account in Armenia, Kyrgyzstan, and Tajikistan. In Kazakhstan, the rising current account deficit was due to growing dividend payments to direct foreign investors.

The recovery in economic activity, accompanied by weakening inflation risks, had a positive impact on the living standards of the population in the region. In 1Q 2017, unlike in the same period last year, real wages started to demonstrate a positive trend in all EAEU countries except Kazakhstan, although the rate of decline slowed in that country.

The accelerated economic activity in EAEU countries in the first half of 2017 led us to revise our GDP outlook for the full year. We raised our Russian GDP forecast by 0.3 pp to 1.4%, which, in its turn, has driven a higher 2017 GDP forecast for Belarus, up 0.1 pp to 1.4%. There were more considerable changes with respect to Kazakhstan and Armenia. The deferred effect of stimulatory fiscal and monetary policy in 2016 amid a quick recovery in remittances was reflected in consumer demand trends in Armenia in 1H 2017. In these circumstances, we raised Armenia’s full-year GDP outlook from 2.9% to 5.2%.

In Kazakhstan, a quicker than expected economic recovery driven by the favourable external economic environment and a more pronounced effect from the completion of new industrial facilities was the basis for the improved GDP outlook for 2017. However, we took a more conservative view of Tajikistan’s long-term growth prospects, amid rising inflation risks and increased vulnerability of the banking sector.

I would like to highlight the significance of the distance and transport costs factor both for the companies’ competitiveness in particular and for economic trends in the country as a whole. According to our estimates, the economic costs of overcoming the distance disadvantages to reach global markets for the largest EAEU countries lead to transport costs that considerably exceed developed OECD countries’ average indicators.

This, in its turn, requires greater coordination of economic policy as well as development of transport infrastructure – all that will contribute to improved GDP growth in Eurasian countries.

In this regard, amid the recovery in trade and economic growth rates, Eurasian Economic Union (EAEU) countries
are taking further steps aimed at improving economic integration. In particular, in the transport and logistics sphere, quarantinable products will be transported within the territory of the EAEU under standardized rules from 1 July 2017. Uniform domestic tariffs have already been established for cargo transportation by rail for the EAEU. In addition, an important step on the way to further integration was the approval by the presidents of the EAEU countries of a key strategic document – Main Directions and Stages of the Coordinated (Agreed) Transport Policy – in December 2016. Also worth mentioning is further progress in developing the EAEU through building economic alliances – a joint statement was signed in June between the EAEU and the Republic of India on beginning negotiations on a Free Trade Area agreement.

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