Economic Monitor

After Ukraine’s economy declined by 29.1% in 2022, economic growth is further impeded by war-related factors in 2023. Real GDP is forecast to increase by 1.8% yoy.

Capital controls and significant international aid are important factors to keep the exchange rate stable. Also, a significant budget deficit (28% of GDP) requires international financial support to stop reliance on monetary budget financing. As the national bank stopped this financing policy in 2023, inflation slowly declined but risks remain. Significant cuts of the key policy rate are unlikely.

In this context, the IMF programme is not only a crucial step to close the fiscal gap but also to coordinate reform and international aid efforts for Ukraine’s economic recovery and reconstruction.

Moldova’s GDP declined by 5.9% yoy in 2022 reflecting both the weak agricultural year due to bad weather and the various impacts of the war in neighbouring Ukraine. Moldova was affected by a massive increase in inflation to 28.7% on average due to high-er energy and food prices as well as overall political insecurity in the context of the war, which inhibited investment. The exchange rate of the Moldovan Leu depreciated only moderately by 7.4% against the US dollar despite high inflation, which constituted a significant real appreciation of 10%. As a result, the competitiveness of Moldovan products was negatively affected. For 2023, the outlook is moderately positive with an expected GDP growth of 2% and inflation has started to slow down. However, significant downside risks persist as the war in Ukraine continues.

The Georgian economy grew by 10.1% in 2022, the second consecutive year of double-digit growth. An important factor was the high influx of people from Russia and Belarus, which drove consumption. As a result of this influx, tourism revenues and money transfers also rose strongly. Additionally, increased activity in the transport sector contributed to growth. Growth of around 4.0% is expected for 2023, with the influx of people from Russia and Belarus remaining a determining factor.

With a real GDP growth rate of merely 2.7% in 2022, Kosovo’s economy is experiencing only moderate economic growth. In particular, a massive increase in imports of goods – following surging global prices for key products – as well as weak consumption on the back of inflation and declining public investment had a negative impact on economic performance. These negative influences were at least partially absorbed by remittances and tourism activities of the Kosovar diaspora. For 2023, the outlook is slightly more favourable, with a recovery predicted for both consumption and investment following an expected ease in global commodity prices.

The Russian migration to Armenia in wake of the war in Ukraine has fuelled a substantial economic upsing. Russian migrants are drivers of consumption and quite often also have a background in IT, which is welcome news, if Armenia can convince the freshly arrived to remain in the country for a longer period of time.

The Tajik economy presents itself in a fairly good condition – economic growth was strong last year and supported by all sectors of the economy, while inflation is very moderate according to official data, public finances are in a sound condition and the country has a current account surplus, due to metal exports and remittances. Geopolitical events, such as the war in Ukraine and sanctions imposed on Russia, do not show adverse effects so far.

The Kyrgyz economy grew strongly in 2022, despite the effects of the war in Ukraine, but high inflation is weighing on the country. Furthermore, there is an increasing export dependence on Russia.

The war in Ukraine so far has had not the expected negative impact on the Kazakh economy; rising oil prices even supported economic growth and exports. High inflation since the Corona pandemic remains a problem, prompting the Central Bank of Kazakhstan to significantly increase the key interest rate.

Russia`s full-scale war has been causing dramatic human, social, and economic suffering. GDP is forecast to decline by 32% yoy in 2022. Public finance is strongly hit. The budget deficit stands at USD 5 bn per month covered by NBU’s monetary financing and intern. support (grants and loans). Thereby, inflation has strongly accelerated and is expected to exceed 30% yoy in December. The NBU introduced a fixed exchange rate regime and capital controls to set a nominal anchor. A strong decline in reserves (USD 7 bn) necessitated a devaluation of the exchange rate in July. Russia’s blockage of seaports leads to a strong export decline, increased devaluation pressure, and has global implications.

The war in Ukraine and especially the Western sanctions have had a significant effect on the Belarusian economy. The country is currently in recession, with GET forecasting a real GDP decline of 6.2% in 2022. Inflation remains high and the fiscal situation is deteriorating. Real wages are declining for the first time since the 2015/2016 crisis. The difficult situation is also felt in the banking sector.

Moldova is affected by several shocks due to the war in Ukraine. Energy and food prices, which, as a result, remain very high, and the consequent inflation pose a serious problem. The war has also partially disrupted foreign trade. Furthermore, Moldova accommodates a large number of refugees from Ukraine. The impact of these shocks results in a negative economic outlook for this year: GET forecasts a 0.4% decline in GDP with significant downside risks.

After a strong economic recovery in Kosovo in 2021, the economic outlook for 2022 is less favorable. The reasons for this are the expected high inflation due to higher import prices for energy and food. Related subsidies are expected to increase the budget deficit to 3.2% of GDP.