Commonwealth of Independent States: Recovery Picks Up

CIS Economic data

June 8, 2018//-Preliminary GDP figures for the economy of the Commonwealth of Independent States (CIS) reveal that the regional recovery bounced back at the start of 2018, regaining some of the momentum lost in the fourth quarter.

Regional growth came in at 1.9% annually in Q1, picking up from Q4’s soft 1.5% expansion, according to FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries  in Africa, Asia, Europe and the Americas.

Higher commodity prices, low inflation and a recovery in Russia’s economy are fuelling the region’s recovery, the report added.

In its June 2018 estimate released this month noted: “The upswing was driven chiefly by faster growth in major player Russia, which accounts for over 80% of the region’s nominal GDP”.

Although the details behind the headline figure have not yet been released, household spending is expected to have driven growth as it rides numerous tailwinds including low unemployment, rising wages and improving sentiment.

In addition, activity also accelerated in Azerbaijan, Belarus and Kazakhstan in the first quarter. Notably, Azerbaijan’s economy grew at the quickest pace in over two years thanks to a solid performance by the non-oil sector.

Faster growth in the manufacturing and services sectors helped fuel an uptick in GDP growth in Kazakhstan.

Preliminary data for Ukraine, which is not included in the regional aggregate, also revealed that growth picked up pace in the first quarter.

Rising real wages likely gave a boost to household spending, while industrial activity also improved in the period, the FocusEconomics report stressed.

However, the rate of growth was still moderate overall, considering the positive base effects from the economic blockade against the rebel-held areas which started in the first quarter of 2017.

The economy still faces important challenges including an ongoing conflict with the rebel-held regions and a lack of progress in the IMF program.

On the political front, events in the region have calmed somewhat following a turbulent April. Although Russia’s relationship with the West remains tense, several high-profile management figures stepped down in May from large corporations, in an attempt to win exemptions from the sanctions imposed in April and safeguard the companies from further financial turbulence.

The rubble also regained some lost ground in the month, although it remains below its March value. Meanwhile, a political shakeup has taken place in Armenia in the wake of mass demonstrations against corruption in the government.

A new government was sworn in on 21 May led by opposition leader Nikol Pashinyan as prime minister, with the primary objective of holding new elections, which should help calm the political environment.


Activity to strengthen gradually this year

Regional growth is seen picking up slightly in 2018 after coming in at 1.9% last year. Firmer commodity prices, a favorable external environment and reviving household consumption should boost growth to 2.1% this year, which is unchanged from last month’s forecast.

That said, geopolitical risks remain high, especially for Russia, and structural weaknesses in the region still need to be addressed by policy makers, especially regarding poor business environments and a lack of diversification. In 2019, growth is seen remaining stable at 2.1%.

This month, regional giant Russia, as well as Kyrgyzstan and Tajikistan, saw no changes to its growth projections, keeping the regional outlook stable overall.

However, four economies had their prospects upgraded, including Belarus and Kazakhstan. In contrast, Moldova and Uzbekistan were the only economies to have their growth forecasts downgraded.

As for the three countries that are not included in the regional GDP aggregate, analysts held the forecasts for Georgia and Ukraine unchanged, while Turkmenistan’s prospects were downgraded.

Turkmenistan is projected to grow a robust 5.9% in 2018, while Tajikistan and Uzbekistan are expected to be the region’s top performers, both growing over 5.5%.

In contrast, Azerbaijan and Russia are projected to be the laggards, growing 1.8% and 1.7%, respectively. Among the region’s larger economies, Kazakhstan is expected to grow at the fastest rate (3.6%), followed by Belarus (2.9%).

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