High gas prices, inflation dampen growth in EBRD regions

In an update to its Regional Economic Prospects forecasts, the bank said growth in its regions is expected to pick up to 3.3 per cent in 2024.

Output is estimated to have grown by 3.2 per cent year on year in January-September 2022 and by around 2.4 per cent for the year as a whole—slower than in 2021, as Russia’s war on Ukraine took its toll and the post-COVID recovery ran out of steam.

Nevertheless, growth exceeded expectations, as consumers in emerging Europe continued to spend private savings accumulated during the pandemic, EBRD said in a release.

Gas prices have now largely returned to the levels seen before the war, as new supplies of liquefied natural gas and deliveries from Norway and Algeria help to reduce price pressures. Thanks to lower consumption, driven by Europe’s mild winter and higher prices, gas in storage in Europe is above corresponding levels in 2021, the bank reported.

However, in real terms, such levels are comparable to the highs of the 1980s and amount to gas prices six times higher than those across the Atlantic.

At the same time, average inflation in the EBRD regions dropped to 16.5 per cent in December after peaking at 17.5 per cent in October.

“Optimism about the rate of recovery and growth after the crises of recent years, notably the war in Ukraine, is, in our view, misplaced. That is why we are calling this end-of-winter update to our forecasts ‘Not out of the woods yet’,” said EBRD chief economist Beata Javorcik.

In the long term, the phasing out of the inefficient use of gas is likely to be positive for Europe’s competitiveness, the new EBRD report pointed out.

The bank forecasts a rise in Ukraine’s gross domestic product (GDP) of 1 per cent this year (down from the 8 per cent forecast last September). This would amount to a stabilisation of real output at around 70 per cent of its 2021 level. The bank’s forecast for 2024 for the country is for 3 per cent growth.

GDP growth in Turkiye slowed significantly in 2022 and is expected to fall further, to 3 per cent in 2023 and 2024, as growing external financing requirements and political uncertainty associated with elections create significant economic vulnerabilities. These forecasts do not take into account any impact on the country’s economy of last week’s earthquakes.

The impact of the earthquakes on overall economic activity in 2023 is likely to be limited to 1 per cent of GDP, with the boost from reconstruction efforts in the later months of the year likely to partly offset the damage to supply chains and infrastructure.

Output in central Europe and the Baltic states is expected to increase by 0.6 per cent in 2023. In 2022, the region’s economies proved more resilient than expected, but falling purchasing power, weaker external demand from advanced Europe and elevated financing costs are expected to weigh on growth this year. Growth is forecast to pick up to 2.7 per cent in 2024, still below medium-term potential, reflecting continued high energy prices and short-term costs associated with the green transition.

Countries in the south-eastern European Union have also been resilient to shocks, but experienced sharply lower growth rates in the second half of 2022. Growth of 1.5 per cent is forecast in 2023, picking up to 3.1 per cent in 2024.

Output in eastern Europe and the Caucasus (excluding Ukraine) exceeded expectations in 2022, driven by high growth in Armenia and Georgia. Growth is, however, expected to slow to 2.7 per cent in 2023  before accelerating moderately to 3.6 per cent in 2024 amid the waning impact of extraordinary factors related to the rerouting of trade around Russia and the inflow of capital and skilled migrants.

Output in Central Asia is expected to grow by 4.9 per cent in 2023. This slight upward revision from September reflects the boost from high oil and gas prices for commodity exporters, increased inflows of labour, capital and remittances, and a rise in intermediated trade.

Output growth in Central Asia is seen picking up to 5.4 per cent in 2024 on planned infrastructure investments, high commodity prices and the relocation of Russian businesses.

Output in the southern and eastern Mediterranean is forecast to grow by 4 per cent in 2023 and 4.2 per cent in 2024. While growth decelerated sharply in 2022 on higher inflation and tighter financing conditions, it is expected to recover in 2023 as agricultural output rebounds and much-needed structural reforms advance.

ALCHEMPro News Desk (DS)