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    Money

    Central Asia faces growth challenges and inflation pressures, ADB experts say

    Central Asia faces growth challenges and inflation pressures, ADB experts say

    The Asian Development Outlook July 2023 report sheds light on the economic landscape of Central Asia, highlighting the subregion's growth challenges and inflation pressures. As the global economy evolves, Central Asian countries face adjustments in growth projections and the need to address inflationary pressures.

     

    Photo: Asian Development Bank HQ
    Source: AP

     

    Growth Forecasts and Adjustments:

    The Asian Development Outlook July 2023 report provides insights into the economic landscape of the Caucasus and Central Asia subregion. The growth forecast for the subregion has been downgraded by 0.1 % for 2023 and by 0.2 % for 2024. These adjustments reflect downgrades for Azerbaijan and Turkmenistan.

    In Azerbaijan, oil and gas production experienced a greater decline than expected in the first five months of 2023, coupled with a drop in global oil prices. Production is expected to slow further in the forecast horizon.

    Although growth forecasts have been slightly upgraded for Georgia, Kazakhstan, and Tajikistan in 2023 following stronger performance in the first five months of the year, these improvements are not sufficient to offset the downgrades in Azerbaijan and Turkmenistan projections. Growth forecasts remain unchanged for Armenia, the Kyrgyz Republic, and Uzbekistan.

    Photo: ADB global July 2023 forecast
    Source: Asian Development Bank

     

    Focus on Kazakhstan:

    Kazakhstan, as the largest economy in the subregion, sees its 2023 growth forecast revised up to 3.9%. The upgrade reflects higher growth in the first quarter of 2023 and expanded domestic demand following a budget revision in March, which added 10% to fiscal stimulus. GDP growth accelerated to 5.0% year-on-year in Q1 2023, driven by a 5.4% increase in manufacturing and a 5.3% increase in services, reflecting sustained domestic demand.

    Private consumption is expected to continue to accelerate as inflation slows down and households experience higher real incomes. The country's sustained social spending and expansionary fiscal policy will support public consumption, while large infrastructure projects included in the 2023 fiscal stimulus will boost investment.

    Export growth will be buoyed by a gradual increase in oil output, nearing Kazakhstan's quota under arrangements with other petroleum exporters. Improved demand from Kazakhstan's trade partners will further support exports. The growth forecast for 2024 remains unchanged at 4.1%.

     

    Inflation Challenges:

    Inflation remains a challenge in the subregion, with a forecasted rate of 10.6% for 2023 and 7.8% for 2024. These projections are higher than those in the April 2023 Asian Development Outlook, primarily due to high inflation in Kazakhstan and especially Azerbaijan, where inflation remained at 11.5% in the first five months of 2023 despite tightening monetary policy.

    While external inflationary pressures in Kazakhstan have eased, tamping down inflation will be hindered by recent announcements of expansionary fiscal policies in both 2023 and 2024. Conversely, inflation has significantly decelerated in Georgia, dropping from 13.1% year-on-year in the first five months of 2022 to 5.4% a year later, and in Armenia from 7.7% to 5.2%.

    As a result, central banks in both countries have lowered their policy rates for the first time since 2020. Consequently, inflation forecasts for these countries, as well as Turkmenistan, have been revised down for both years.

     

    S&P’s forecast for Uzbekistan:

    According to a recent report by S&P Global Ratings, Uzbekistan's economy is projected to experience a growth rate of 5.4% in the coming years. This optimistic forecast reflects the country's continued focus on implementing economic reforms and improving the business environment.

    Uzbekistan has made notable progress in diversifying its economy away from heavy reliance on commodities and natural resources, with emphasis placed on developing sectors such as manufacturing, services, and tourism. The report highlights the positive impact of structural reforms, including liberalization measures and the simplification of business regulations, which aim to attract foreign direct investment, foster private sector growth, and enhance competitiveness.

    Uzbekistan's commitment to infrastructure development, particularly in transportation and energy, is expected to contribute to its economic growth through projects such as the construction of highways, railways, and power plants.

    The country's active involvement in regional integration initiatives, such as the Belt and Road Initiative and the Central Asia Regional Economic Cooperation program, further enhances its prospects by strengthening trade and economic ties with neighboring nations.

    However, the report also acknowledges the need to address challenges, including the continuation of reforms, improving governance and transparency, and attracting foreign investment. By effectively addressing these issues, Uzbekistan can sustain its positive economic trajectory and bolster its creditworthiness.

     

    World Bank forecast for Uzbekistan:

    Uzbekistan's 2022 GDP grew by 5.7% driven by remittances, consumption, and exports. Non-gold exports increased by 21% with textiles, metals, fertilizers, and food as major contributors. Inflation reached 12.3% in December 2022, and the Uzbekistani Som depreciated by 3.8% against the USD. Unemployment declined to 8.8%, while the poverty rate is projected to fall to 14% in 2022.

    Photo: World Bank Spring 2023 report and forecast on Uzbekistan
    Source: World Bank

     

    Looking ahead, Uzbekistan's growth is expected to moderate to 5.1% in 2023, impacted by Russia's war in Ukraine and logistical challenges. Private investment and trade are expected to grow, while the current account deficit is projected to widen. Fiscal consolidation aims to reduce the deficit to 3.3% of GDP in 2023. Continued reforms and social protection programs are expected to sustain poverty reduction, with the national poverty rate projected to fall to 12% in 2023.

    Follow Daryo's official Instagram and Threads pages to keep up to date on world news.

    20.07.2023, 11:11   Comments (0)   1142
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