Fiscal policy and credit growth continue to stimulate domestic demand: The EFSD presents its Regional Economic Outlook. Fall’24
October 16, 2024. The Eurasian Fund for Stabilization and Development (EFSD) has released its Regional Economic Outlook. Fall’24 (REO). The report analyzes the current situation in EFSD member economies, providing projections and reviewing key risks to development.
In the first half of 2024, economic activity maintained fairly high growth in all EFSD member states. Despite a tighter monetary policy, the Russian economy continued to expand at a consistently high rate, boosting foreign trade, investment activity and remittances across the region.
In this context, and amid a favorable external environment, EFSD experts observed an acceleration of economic activity in some EFSD member states.
“However, we are starting to see a gradual decline in the positive contribution to the growth of effects driven by market factors in the Russian economy. This has already resulted in a slowdown in economic activity in Armenia to 6.5%,” notes Sergei Ulatov, Deputy Executive Director and Chief Economist at the EFSD.
Fiscal policy continues to play an important role in most EFSD member states in stimulating consumer and investment activity, which remain key growth drivers. In addition, despite relatively tight monetary conditions in the member countries, strong credit growth continues to support domestic demand.
In Russia and Kazakhstan, rapid credit growth, combined with substantial fiscal stimulus, has sustained elevated inflationary pressures, requiring high key rates to persist longer. Meanwhile, smaller EFSD economies keep inflation near target levels, partly through administrative measures.
Balance of payments indicators have improved in most countries, resulting in relatively stable exchange rates of their national currencies.
“Based on the economic data from the first half of 2024 and expected global and regional developments, we have slightly revised our growth forecasts for 2024 – upward for countries like Kyrgyzstan, Russia, and Tajikistan, and downward for Armenia and Kazakhstan,” says Sergei Ulatov.
The projected growth rates for 2025–2027 remain largely unchanged, with all countries expected to see them slow to their potential values. Overall, the economic challenges highlighted in the summer REO report persist. In Russia and Kazakhstan, these challenges include ensuring balanced macroeconomic management while facing the difficult trade-off between maintaining high economic growth and avoiding imbalances associated with the overheating of the economy, including persistent inflationary pressures and structural constraints in the labor market. For smaller economies, the main challenge is the negative impacts of potential shifts in trade and financial flows.
Despite a reduction in uncertainty regarding the medium-term outlook for global and regional economies during the first half of 2024, significant macroeconomic, financial and geopolitical risks remain in both the global economy and the EFSD region. The risk of a sharp weakening in external demand poses a key threat to growth for the Fund’s member economies under the baseline projection. Globally, concerns center around a potential sharp slowdown or stagnation in the world’s major economies (the U.S., China, and Europe).
Another risk for economic growth in all economies across the region is a more pronounced slowdown in Russia’s economy.
The risk of slowing global demand is already reflected in the high volatility of prices for key commodities, raising the possibility of a further decline in commodity and energy prices in the near term and presenting challenges for the economic policies of certain EFSD member states in maintaining foreign trade, fiscal and price stability.
“In our baseline projection, which we describe as moderately optimistic, economic policies in all countries will aim to maintain macroeconomic balance and normalize monetary policy. However, while the external economic positions of ESFD recipient countries remain quite stable in the medium term, our estimates indicate potential gaps in the financing of budgets and balance of payments. This is an additional challenge for the authorities of these countries in maintaining macroeconomic and financial stability,” concludes Sergei Ulatov.
The full version of the “Regional Economic Outlook. Fall'24” is available on the EFSD website.
The Eurasian Fund for Stabilization and Development (EFSD) is a regional financing arrangement totaling over US $9 billion, established in 2009 by the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan. The EFSD aims to promote economic and financial stability in its member states and support their sustainable development.
The EFSD Press Service: