Wednesday, February 8 2023 17:18

ArmInfo. In 2022, global economic developments were shaped by three trends: 1) a surge in inflation in developed countries that has been unseen for years; 2) a rapid increase in interest rates; and 3) a cooling economy. By now, evidence is  building that the first two trends - soaring inflation and  skyrocketing interest rates - are nearing their end.  This is stated  in the latest Eurasian Development Bank (EDB) Macroeconomic Review  published by the Bank in 2023.

The Macroeconomic Review notes that the peak of inflation in  developed countries is very likely to have been passed at the end of  2022. By the end of the year, consumer price growth in the U.S. had  slowed to 6.5% year-on-year from a peak of 9.1% year-on-year in June  and in the eurozone to 9.2% year-on-year from a peak of 10.6%  year-on-year in October, owing, to a significant extent, to the  corrective decline in the prices of raw materials. In addition,  global supply chains are gradually returning to normal as confirmed,  for example, by a drop in maritime transport costs to levels last  seen before the pandemic.  The hawkish rhetoric of major central  banks is easing along with inflationary pressures. EDB researchers  believe that the U.S. key rate has already reached its ceiling in the  current cycle and the Fed could lower it by the middle of the year  due to slowing business activity. Other developed economies' central  banks are expected to catch up with the Fed with time.  

The Macroeconomic Review also states that weaker global economic  activity remains an issue on the agenda and there are no signs that  this trend has been reversed. China's abandonment of its zero-COVID  policy improves the outlook for the entire global economy this year  as does a rather mild winter in the EU, which has eased the challenge  of energy supplies to European countries. However, PMI indicators  continue to demonstrate that business activity in major economies  remains weak.  Economic developments in the EDB region are strongly  linked to global economic trends. The global reversal of inflation  and domestic factors constrain consumer price growth in the region.   EDB analysts estimate that in December 2022 inflation in the Bank's  member states fell to 12.5% year-on-year from 13.9% year-on-year in  September and believe that, should there be no new shocks, it could  be halved by the end of 2023, to 6.2%.  The weakening of global  business activity last year impacted the Bank's member economies  differently. EDB analysts estimate that the member states' aggregate  GDP declined by 1.7-2% in 2022 as a result of the West imposing  restrictions on Russia and Belarus. By contrast, Armenia, the Kyrgyz  Republic and Tajikistan's GDP rates grew strongly owing to higher  domestic demand. Kazakhstan's GDP increased by 3.1% despite the  weaker performance of its key trading partners, Russia and  Kazakhstan, the Macroeconomic Review notes. 

According to the source, if the reduction of interest rates by the  leading central banks of developed countries is really not delayed  and they manage to avoid a hard landing, this may provide a fairly  comfortable external environment for the the economy of the region of  the Bank's activity in 2023. Of course, if there will be no new  large-scale shocks.

The economic outlook is potentially particularly favorable for  Kazakhstan. The country can become one of the beneficiaries of the  growth in the consumption of traditional energy resources in the  world, including through the expansion of its oil production and  processing capacities and the restructuring of global supply  logistics.  The situation is not so clear for the small economies of  the region (Armenia, ed. note), which have made exceptional progress  in 2022 thanks to the influx of human and financial resources. When  assessing the prospects for economic growth in 2023, the possibility  of a slowdown in this inflow or even a certain outflow should be  taken into account, which carries risks for the service and trade  sectors.