Wednesday, June 9 2021 17:16

ArmInfo.The World Bank's forecast for GDP growth in Armenia has not changed: - 3.4% in 2021, with an acceleration to 4.3% in 2022 and 5.3% in 2023 (against an actual  decline of 7.4% in 2020). This is stated in the new June report of  the World Bank "Global Economic Prospects".

In the neighboring countries of Armenia, the World Bank forecasts: in  Georgia - GDP growth in 2021 by 6%, with a slowdown to 5% in 2022 and  maintaining this rate in 2023; in Azerbaijan - GDP growth in 2021 by  2.8%, accelerating to 3.9% in 2022, and then decelerating to 3.4% in  2023; in Turkey - GDP growth in 2021 by 5%, with a slowdown in 2022  to 4.5% and the same rate in 2023; in Iran - GDP growth in 2021 by  2.1% with a moderate acceleration to 2.2% in 2022 and 2.3% in 2023.

Of the EAEU countries, only Belarus will linger in recession Among  the EAEU countries, the World Bank predicts the same 3.2% GDP growth  in 2021 across Russia and Kazakhstan. But in 2022-2023, Russia will  slow down its GDP growth rate from 3.2% to 2.3%, and Kazakhstan will  accelerate from 3.7% to 4.8%. And for Kyrgyzstan, the World Bank  predicts a higher GDP growth for 2021 - 3.8%, with an acceleration to  4.3% in 2022 and 4.5% in 2023. And only in Belarus, GDP will linger  in 2021 in a decline of 2.2%, after which in 2022 it will reach a  weak 1.9% growth, which in 2023 will slow down to 1.2% WB predicts  high GDP growth in China For the Europe and Central Asia (ECA)  region, the World Bank forecasts economic growth in 2021 at 3.9%,  maintaining this pace in 2022 and a slight slowdown in 2023 to 3.5%.  The world economy, according to the WB forecast, after growth by 5.6%  in 2021, will weaken the pace in 2022 to 4.3% and in 2023 to 3.1%.  The US economy, according to the WB forecast, will grow by 6.8% in  2021, followed by a slowdown to 4.2% in 2022 and 2.3% in 2023. In the  Eurozone, the World Bank predicts economic growth in 2021 by 4.2%  with an acceleration to 4.4% in 2022 and a subsequent slowdown to  2.4% in 2023. For the Japanese economy, the World Bank forecasts  growth by 2.9% in 2021, after which a slowdown is expected from 2.6%  to 1% in 2022-2023. And China's GDP, according to the WB forecast,  will accelerate growth in 2021 to 8.5%, then slow down to 5.4-5.3% in  2022-2023.

Risks affecting the forecast

In the analytical section of the ''Regional outlook Europe and  Central Asia'' report WB notes that the forecast is subject to  predominantly downside risks, including those related to the  pandemic. Although the region has administered more vaccine doses per  person relative to the world average, vaccine distribution and  progress remain highly uneven; only about one-third of ECA's  economies are above the world average, while the rest continue to  trail the world average due to logistical challenges and vaccine  hesitancy. Absent clear and consistent communication to strengthen  public trust, the suspension of vaccines due to safety concerns could  contribute to higher-than expected vaccine reluctance. 

WB notes that the combination of supply bottlenecks and subdued  vaccine demand in some ECA countries, juxtaposed with widespread  vaccination in others, could contribute to an uneven regional  recovery. The pandemic could also exacerbate the slowdown in  investment in physical and human capital, which was already steep in  ECA due to longstanding structural challenges. Following a collapse  in fixed investment, forecasts for long-term investment growth point  to a decline 1.7 percentage points over the next decade. The pandemic  has also dented the accumulation of human capital through school  closures and sustained spells of unemployment. On the upside,  however, the pandemic offers opportunities to lift long-term growth.  Digitalization could be harnessed to strengthen governance by  enhancing public efficiency and transparency. 

The risk of financial stress also looms over the region's outlook.  Renewed policy uncertainty has exacerbated the decline in portfolio  inflows and reignited currency depreciation and reserve losses. As a  result, external financing pressures are building, particularly in  countries with a large share of foreign-currency-denominated debt. An  acceleration in inflation has further constrained the capacity of  some central banks to buffer the impact of additional negative  external shocks, with about one-third of the region's economies  forced to raise policy rates in 2021. A sharper erosion of investor  sentiment could abruptly tighten financing conditions, and lead to  cascading defaults and rising non-performing loans. Corporate balance  sheet pressures have continued to rise as authorities unwind  liquidity support and regulatory forbearance, putting strain on the  banking sector.

The possibility of intensifying geopolitical tensions is also a  downside risk in ECA, and could be accompanied by additional  sanctions and financial market pressures. The region could be  destabilized by an escalation of conflict in Ukraine or between the  Kyrgyz Republic and Tajikistan, as well as by elevated stability  risks linked to post-conflict settlements between Armenia and  Azerbaijan. Additional political pressures in Belarus or the Kyrgyz  Republic could weaken the outlook in Eastern Europe and Central Asia.   Disagreements between the EU and other major economies could also  lead to additional sanctions that could have spillover effects into  some ECA countries. A further rise in policy uncertainty,  particularly in some of the region's large economies, could also  undermine the recovery if it triggers financial stress.

After suffering the sharpest collapse in output among the ECA  subregions in 2020 amid armed conflict, the South Caucasus is  projected to return to positive growth, expanding 3.6 percent in  2021; growth is then expected to strengthen to 4.2 percent in 2022.  The recovery in early 2021 remains muted, reflecting subdued domestic  demand due to the pandemic, as well as an escalation in domestic  political tensions (Armenia) and continued weakness in transport and  tourism (Georgia). Monetary policy has also tightened, with Armenia  and Georgia having hiked policy rates. The current forecast is  predicated on the dissipation of the shocks related both to the  pandemic and to conflict, and on a recovery in tourism alongside  improving consumer and business confidence. Growth in Azerbaijan is  expected to be supported by stabilization of oil prices as well as  investment and reconstruction spending. The November 2020 ceasefire  agreement between Armenia and Azerbaijan have alleviated geopolitical  tensions in the region, although risks to stability remain elevated.

Recent currency depreciations have put further upward pressure on  prices. Of the 17 ECA central banks with inflation targets, nearly  half reported headline inflation above the upper bound of the target  band in early 2021. As a result of inflationary pressures, policy  interest rates have been raised in one-third of the region's  economies thus far in 2021 (Armenia, Belarus, Georgia, Kyrgyz  Republic, the Russian Federation, Tajikistan, Turkey, Ukraine).  Although the banking sector has adequate liquidity and buffers in  many ECA economies, increases in nonperforming and distressed loans  are expected as countries continue to phase out regulatory relief and  moratoriums on credit obligations.  The large fiscal support packages  delivered in 2020-equivalent, on average, to 7.5 percent of GDP-are  expected to be partially unwound this year (figure 2.2.1.D). The  fiscal response to the pandemic, together with last year's  contraction in output, is expected to leave median public debt at 54  percent of GDP by end-2022-nearly 15 percentage points higher than in  2019.  Nevertheless, targeted fiscal support, such as wage subsidies  and cash transfers, is estimated to have helped avert a larger spike  in poverty and job losses (Kazakhstan, Turkey, Western Balkans; World  Bank 2021a). As countries gradually withdraw support measures,  however, job losses could increase again.

WB leadership's opinion

"While there are welcome signs of global recovery, the pandemic  continues to inflict poverty and inequality on people in developing  countries around the world," said World Bank Group President David  Malpass. "Globally coordinated efforts are essential to accelerate  vaccine distribution and debt relief, particularly for low-income  countries. As the health crisis eases, policymakers will need to  address the pandemic's lasting effects and take steps to spur green,  resilient, and inclusive growth while safeguarding macroeconomic  stability."

"Linkages through trade and global value chains have been a vital  engine of economic advancement for developing economies and lifted  many people out of poverty. However, at current trends, global trade  growth is set to slow down over the next decade," World Bank Group  Vice President for Equitable Growth and Financial Institutions  Indermit Gill said. "As developing economies recover from the  COVID-19 pandemic, cutting trade costs can create an environment  conducive to re-engaging in global supply chains and reigniting trade  growth."

"Higher global inflation may complicate the policy choices of  emerging market and developing economies in coming months as some of  these economies still rely on expansionary support measures to ensure  a durable recovery," World Bank Prospects Group Director Ayhan Kose  said. "Unless risks from record-high debt are addressed, these  economies remain vulnerable to financial market stress should  investor risk sentiment deteriorate as a result of inflation  pressures in advanced economies."