Economic Snapshot for the CIS Countries

July 3, 2019

Prospects in CIS countries remain gloomy in 2019

Prospects in CIS countries remain gloomy this year. The marked slowdown in Russia’s economy, due to a constrained energy sector and feeble consumer demand, will drag on growth across the region, while frail external demand and geopolitical uncertainty is likely to curb growth further. An acceleration in Azerbaijan will be an exception, amid booming natural gas industry.

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Russia Economic Outlook

A second GDP estimate confirmed that the economy ran out of steam in the first quarter, amid a broad-based deceleration. Wholesale and retail trade contracted in Q1 as January’s VAT hike dented consumer demand, while a lackluster outturn in the manufacturing and constructions sectors further derailed growth. Moreover, constrained oil output and weak energy demand from Europe curbed mining activity, bringing merchandise exports to a near halt in Q1. Turning to Q2, soft momentum appears to have persisted. After rebounding in April, economic activity growth tumbled again in May, owing to a deterioration in the manufacturing sector. In addition, weaker household consumption likely played a role, as retail sales growth slid in the month. Going into Q3, the focus is on 1–2 July OPEC+ meeting, where oil output cuts are likely to be extended. 

Sliding private consumption and a downbeat external sector will restraint growth this year, although an uptick in public spending should provide some relief. Meanwhile, growth in the short-term should pick up slightly thanks to monetary policy easing, while a stronger boost over the medium-term is expected as the “national projects” plan gains traction.

FocusEconomics panelists see growth at 1.4% in 2019, which is unchanged from last month’s forecast. In 2020, GDP is seen increasing 1.8%.

Kazakhstan Economic Outlook

Economic activity likely remained stunted in the second quarter, on the heels of a deceleration in the first quarter. In May, the short-term economic activity indicator weakened for a second consecutive month, amid a drop in industrial production—brought upon by a slowdown in the manufacturing sector—and the sharpest slump in oil output in almost three years, owing to planned maintenance works in the Kashagan oil field. The industrial downturn, coupled with lower oil prices, is likely to have bruised merchandise exports in May, which had barely recovered in April; in turn, this threatens to push the current account back into a deficit by the end of Q2. In the political arena, Kassym-Jomart Tokayev, a loyal lieutenant of former president Nursultan Nazarbayev, won a rubber-stamp presidential election on 9 June. This should ensure the continuity of economic policy ahead.

Growth is set to decelerate this year on a fall in merchandise exports owing to a more challenging external backdrop and easing oil output due to overhauls at the three main oil fields. Nevertheless, solid domestic demand should buffer the slowdown, with a planned fiscal stimulus program supporting consumption and looser credit conditions boosting fixed investment.

FocusEconomics analysts expect GDP to increase 3.5% in 2019, which is unchanged from last month’s estimate, and 3.5% again in 2020.

Ukraine Economic Outlook

Growth slid to a near two-year low in the first quarter. Inventories ate into activity and government consumption recorded the largest drop in over five years as the dire state of public finances and commitments to the IMF fueled fiscal consolidation. Available data for the second quarter points to a moderate strengthening in momentum. Retail sales surged in May, bolstered by rising wages and consumer confidence also continued its upward trend in the same month. In the political arena, the country will vote in snap parliamentary elections on 21 July. Polls point to a commanding lead for newly-elected president Volodymyr Zelensky’s Servant of the People party, which should give him the muscle to push through his agenda and needed reforms. However, a degree of uncertainty persists over the full agenda and ability to govern given his political inexperience.

The economy is seen losing momentum this year due to uncertainty from twin elections and slower growth in key trading partners. That said, monetary policy loosening and rising wages should act as a buffer. Faster-than-expected reform momentum could help jolt sentiment, while downside risks stem from political uncertainty, stalled IMF negotiations and reform rollback.

FocusEconomics panelists see GDP growth of 2.7% in 2019, which is unchanged from last month’s forecast, and 3.0% in 2020.

CIS Countries Monetary & Financial Sector News

Inflation remained stable at 5.3% in May. Although inflation rose in the majority of the region’s economies in May, this was offset by receding price pressures in Russia. Outside the region, inflationary pressures intensified again in Ukraine amid higher transport and food prices. Looking ahead, inflation should ease on soft consumer demand and solid regional currencies.

Soft growth metrics and contained price pressures prompted central banks in Russia and Azerbaijan to cut policy rates in June. In the same month, policymakers in Kazakhstan, Ukraine and Georgia stood pat amid elevated inflation. Further policy easing within CIS countries, including Russia, is seen ahead provided inflationary risks stay at bay.

Most of the region’s currencies stood their ground or strengthened in June, as major central banks signaled monetary policy loosening. In addition, Russia’s ruble benefited from strong demand for local bonds, although the Fed’s more dovish tone dented the gains somewhat. Currencies are seen appreciating slightly overall this year.

See the Full FocusEconomics CIS Countries report