EDB projects 2.9% growth in aggregate GDP of Bank`s member states in  2022

ArmInfo. EDB analysts note that the active phase of the region's economic recovery will complete this year, which is expected to result in a 4% increase in the countries'  aggregate GDP. This is stated in the Bank's Macroeconomic Outlook for  2022, published yesterday.

According to the source, in 2022, economic growth in the Bank's  member states will remain above the pre-pandemic levels and is  projected at 2.9%. Government measures to support investment,  facilitate recovery in services, and boost oil production will help  to maintain the strong growth momentum.

EDB analysts note that the global economy has passed its peak of  recovery this year and global GDP growth will gradually slow down.   Global inflationary pressures will persist in 2022 but are expected  to subside as global demand normalises and supply builds up. In the  baseline scenario, the Bank's analysts assumed that the Urals oil  price would average US $72.5 per barrel in 2022. Average annual  inflation is projected to approximate 4% in the U.S. and 3% in the  eurozone in 2022.  

The report notes that economic activity in the EDB's region of  operations has returned to the pre-pandemic levels by the middle of  the year and can exceed them by around 1% at the end of Q4 2021. The  recovery of the EDB member economies this year was supported by the  effects of fiscal and monetary easing in 2020, people and  institutions adapting to the pandemic, expanding global demand, and  soaring prices for the region's key exports. The analysts point to an  uneven recovery among the Bank's countries of operations.  The GDPs  of Kazakhstan, Russia, Belarus, and Tajikistan exceed the  pre-pandemic levels, while Armenia and Kyrgyzstan have not yet  managed to achieve them. As the economies of Armenia and Kyrgyzstan  declined more in the past year, they need more time to recover. GDP  growth for the region as a whole is forecast at 4% for the year: 4.5%  in Armenia, 2.1% in Belarus, 3.8% in Kazakhstan, 3.7% in Kyrgyzstan,  4.1% in Russia, and 7.9% in Tajikistan.  

EDB analysts believe that economic activity in the Bank's region of  operations will gradually shift towards balanced rates once the  active phase of the recovery is over. In such a context, fiscal  stimuli are reduced and monetary conditions are tightened to prevent  economies from overheating.  

Ruslan Dalenov, Vice Chairman of the EDB Management Board, presented  the vision of the Bank's research team for economic growth in the  region: 

"In the baseline scenario, the EDB member states' GDP is projected to  grow by 2.9% in 2022, after 4% in 2021. Economic growth will remain  above the pre-pandemic rate, which was 2.3% in 2019. This will be  facilitated by government measures to support investment, facilitate  recovery in services, and boost oil production. We project Russia's  GDP to grow by 2.8% and Kazakhstan's by 4.2% in 2022. High global  energy prices and government development programmes will support  economic activity in the region's largest economies. In 2022, strong  GDP growth is forecast in Armenia and Kyrgyzstan, at 4.8% and 4.5%,  respectively. These economies will complete their recovery to the  pre-pandemic levels. Tajikistan is expected to reach a steady  economic growth of around 6-7% per annum. The baseline scenario for  Belarus expects GDP growth of 0.7% in 2022." 

EDB analysts project inflation in the member states to be closer to  target levels by the end of 2022, but note that neutralising  inflation factors will take time. The baseline scenario forecast  inflation in the Bank's region of operations to slow from 8.2% in  2021 to 5.3% in 2022. In Armenia inflation is expected to be 5% at  the end of 2022, after 8% in 2021; in Belarus 7.4% after 10%; in  Kazakhstan 6% after 8.4%; in Kyrgyzstan 7.0% after 9.8%; in Russia  4.9% after 7.9%; and in Tajikistan 6.3% after 8.3%.  

EDB analysts also believe that monetary conditions in the Bank's  member states will have a disinflationary impact in 2022.  Because of  high inflation, key rates in the EDB member states could be raised by  the end of 2021. In Russia and Kazakhstan the key rate is expected to  be in the range of 8-8.5% and 9.75-10% at the end of this year,  respectively. A long period of higher inflation is likely to require  key interest rates to remain above their neutral levels for an  extended period. Bank analysts suggest that the rate-cutting cycle in  Russia and Kazakhstan could possibly start in 2022 as inflation slows  down. The key rate in Russia could be lowered to around 7% and the  base rate in Kazakhstan to 9.5-9.75% by the end of 2022. The  transition to neutral levels is likely to end in 2023.  

Evgeny Vinokurov, Chief Economist at the EDB and EFSD, considers  asset inflation a powerful trend that has resulted from the pandemic  and the economic authorities' response to it:  

"The crisis caused by COVID-19 has accelerated the transformation of  the global economy. It has crystallised and dramatically amplified  several megatrends that had emerged before but were not yet as  visible. These include digitalisation, the transition to a green  economy, and growing digital and social inequalities.  

"Perhaps the only powerful trend that has really resulted from the  pandemic and the economic authorities' response to it is global asset  inflation. The root cause of the surge in asset prices around the  world was the massive fiscal and monetary injections in developed  countries, which led to a rapid recovery in demand outstripping  supply capacity. Supplies now take more time and cost more. We still  believe that transport and logistics difficulties and the surge in  commodity prices are temporary rather than structural changes. The  global economy will show strength and flexibility and neutralise  these problems. However, the latent force of COVID-related damages in  the global economy, as well as the strong influence of monetary  policies are such that it may take longer than expected to neutralise  the inflationary impact of these factors. It would be realistic to  assume that inflation in developed countries will be steadily higher  than in the 2010s - not the 0-2% that the market was already used to  in the 2010s, but perhaps 2-4%.  

"Since the end of the last year, we have based our projections on an  assumption that the environment in commodity markets would be  favourable in 2021. The price environment will probably be good over  the next few years. For the EDB's region of operations, as a net  exporter of commodities, the emerging situation has obvious benefits  - export and budget revenues, as well as the attractiveness of the  national currencies, are growing. This could be a good boost for the  new investment cycle that is gaining momentum.  However, we should  continue to monitor the unwinding of the inflationary spiral. The  threat of persistently high global inflation poses significant risks  to the macroeconomic outlook for the Bank's member states,"they  concluded.