Economic Monitor

After a significant decline of GDP in 2022, Moldova’s economy continues to struggle in the first half of 2023 with GDP decreasing by 2.3 % yoy. Private consumption remains weak and a key driver of this downturn. On the other hand, inflation continues to decline steadily and is expected to be as low as 5.5% by the end of the year. As such, more positive impulses for consumption are expected for the rest of the year. Together with a positive outlook for agriculture, the overall estimate for the year is moderate with an expected GDP growth rate of 2%. In terms of public finances, an increase in the deficit to 6% is planned. Whether or not this deficit will be realised also depends on the extent to which the government will be able to improve its implementation capacities especially for public investment.

Following strong, tourism-driven service exports and buffering effects of state subsidies and remittances on private consumption, Kosovo’s economic grew at a rate of 3.5% in 2022. Negative influences such as low public investment activities and a negative terms of trade shock driven by surging prices for imported commodities could thus be more than outbalanced. For 2023, economic growth is forecasted to be even higher with a predicted rate of 3.8%, however, driven by very different factors than in 2022 – especially a predicted surge in public consumption and investment after stalling in 2022 is predicted to play a key role to this end. In addition, inflation is expected to ease over the year with sharp decreases already observable in the first months of 2023.

Due to Russia’s war against Ukraine and the Western sanctions, Belarus experienced in 2022 the worst recession since the 1990s. The negative effects are strongly felt from a sectoral perspective, with the trade, transport and logistics sector as well as the ICT sector being hit extremely hard. Although governmental price controls allowed for containing inflation in the short term, significant risks remain in this area. With declining revenues, reduced access to international credits and default confirmed by international rating agencies, considerable problems with public finances are apparent, despite the lack of data. GET forecasts a further decline in economic output of 0.4% this year and expects growth of 3.4% next year. The main drivers of growth in the coming year will be positive net exports – due to an advancing reorientation of exports – and recovering domestic consumer demand.

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.