CIS Countries Economic Outlook September 2016

Contraction in regional economy softens but…

CIS Countries: Contraction in regional economy softens but…

September 7, 2016

In the wake of a plunge in commodities prices, a deceleration in China’s economy and the beginning of a protracted recession in Russia, the economy of the Commonwealth of Independent States (CIS) contracted in 2015, showing a substantial deterioration toward the end of that year. The persistent weakness in commodities prices and a further deceleration of the Chinese economy at the beginning of this year prolonged the recession in the region. The release of more complete data across the region showed that the CIS economy contracted 0.6% in Q2 over the same period last year, which was, nonetheless, less pronounced than the 1.1% decrease recorded in Q1. Downward pressure on the region’s growth eased in the second quarter owing principally to an improvement in the economic situation in Russia, which is by far the region’s largest economy.

Head on over to our CIS Countries page for more recent economic news on the region.

The deep recession in the Russian economy is gradually abating as GDP fell just 0.6% annually in Q2, which marks the softest decrease since the economy began to contract in Q1 2015. The gradual stabilization of Russia’s economy is also having positive spillover effects in other economies. Data showed that the contraction in the economies of Azerbaijan and Kyrgyzstan softened in Q2, while economic activity in Georgia and Ukraine accelerated. As the dust settles following the Brexit vote, oil prices have begun to rise. After a bear market in most of July, global prices began to rally in August mainly on the back of a drop in inventories, which suggests a gradual rebalancing of the market. Prices were also pushed up by speculation that some major producers are in talks to coordinate a freeze in production in order to support prices. With a gradual increase in oil prices in August and expectations of a further increase in the coming months, the region’s economic growth is set to stabilize in Q3. FocusEconomics’ Consensus Forecast projects the CIS’ GDP to contract 0.5% in the third quarter. 

…geopolitical tensions increase

Tensions between Russia and Ukraine have increased recently, creating instability in the region. On 10 August, Russia claimed to have frustrated two attempts by Ukrainian forces to infiltrate Crimea in order to conduct sabotage operations. Furthermore, President Vladimir Putin stated that two Russian soldiers had been killed in separate attacks on 6 and 8 August, which “Russia will not ignore”. Ukrainian President Petro Poroshenko has described Russia’s claims as “a pretext for more military threats against Ukraine”. The Normandy Four—the group consisting of the heads of state of France, Germany, Russia and Ukraine—is negotiating to hold talks soon to resolve the conflict, but Russia’s accusations follow a series of events in the past weeks that have raised concerns of an imminent escalation of violence and instability in the region. Among these events were reports of a large-scale movement of Russian troops and military equipment in northern Crimea, the injury of Igor Plotnitsky, head of the Russian-backed separatist regime in Ukraine’s Luhansk region, and the increase in fighting in the Donbas region, with July reported as the worst month for military and civilian casualties since late 2015.

These events represent an escalation in violence and activity in the conflict, but they could also be linked to broader geopolitical considerations. Russia might be reacting to NATO’s latest decision at its summit in Warsaw to station additional troops in Eastern Europe and the Baltic region. Alternatively, it could be seeking to be more proactive in increasing its propaganda ahead of the 18 September parliamentary elections, or attempting to create facts on the ground before a new and probably more hawkish (and hostile) U.S. president is elected. Although the risks of an intensification of the Russia-Ukraine conflict have risen, it remains to be seen if a large-scale conflict will return in the eastern regions of Ukraine. The baseline scenario among analysts predicts a continuation of fluctuating but relative low-level fighting, which the second Minsk peace agreement has been unable to resolve. 

Economic prospects stabilize in September

Economic weakness persisted in the CIS countries in the first half of 2016, yet growth prospects for the remainder of the year are more positive. The economic climate across the region is improving, oil prices are rising and the deep recession in Russia is gradually waning. However, renewed tensions between Russia and Ukraine, as well as prospects that the U.S. dollar will strengthen if the Federal Reserve increases interest rates this year, are casting a shadow on the region’s economic outlook. Our panel of analysts expects regional GDP to contract 0.4% this year. The forecast was unchanged over the previous month’s projection and follows three consecutive improvements.

This month, analysts raised the 2016 growth forecast for Russia. Positive effects from a recovery in the Russian economy also prompted analysts to raise their GDP growth forecasts for Kazakhstan, while the economic outlook for almost all of the rest of the surveyed economies remained unchanged over the previous month. Azerbaijan and Uzbekistan were the only countries for which analysts cut their GDP growth projection.

Given that our panelists expect commodities prices to gradually recovery this year and next, they predict that the economy of the Commonwealth will bounce back strongly in 2017 and expand 1.6%.

See the Full FocusEconomics CIS Countries Report     

BELARUS | Recession is protracted but activity shows mild signs of improvement

The Belarusian economy has been stuck in a recession since last year as Russia’s downturn and subdued commodity prices hit an economy that was already hampered by low competitiveness, inefficient state enterprises and macroeconomic imbalances. After hitting rock bottom in Q2 2015, the contraction in economic activity has been abating in recent months, though economic activity still contracted an annual 2.7% in the January to July period. Fitch Ratings confirmed Belarus’ credit rating at B- with a stable outlook in August, stating that the country’s large external financing needs and low international reserves represent important external vulnerabilities, whereas public finances are healthy. In the political landscape, legislative elections will be held on 11 September and analysts expect pro-government representatives to remain the leading force in the new Parliament.

GDP will contract again this year, even if at a softer pace than in 2015, as external and domestic dynamics remain lackluster and debt repayments due this year limit growth prospects. FocusEconomics Consensus Forecast panelists forecast GDP to decline 1.8% in 2016, which is unchanged from last month’s forecast. For 2017, the panel projects that the economy will return to growth and record a moderate 1.2% expansion.  

KAZAKHSTAN | GDP growth was tepid in H1 but tentative signs of an uptick emerge

The economy is experiencing one of its toughest years in over a decade as a result of low oil prices, the ongoing recession in Russia and slowing demand from China. GDP increased a lackluster 0.1% year-on-year in the first half of 2016 according to preliminary data, supported mainly by solid growth in agriculture and construction, while the industrial sector remained depressed. Tentative signs of a recovery in the country’s battered industrial sector appeared in July when industrial production increased, albeit timidly, for a second consecutive month. This also suggests that economic activity may be gaining stamina in the second half of the year.

GDP growth slowed sharply to 1.2% in 2015 from 4.1% in 2014 and is expected to remain weak this year, should oil prices recover slowly. Further difficulties in Europe in the wake of the Brexit vote and on the back of weak demand from China and Russia are weighing on the outlook. Economists surveyed this month expect the economy to expand 0.4% in 2016, which is up 0.1 percentage points from last month’s forecast. In 2017, GDP is seen accelerating to a 2.2% expansion.  

RUSSIA | Deep recession is gradually abating; United Russia loses popularity  

The economy contracted a further 0.6% annually in Q2 according to a preliminary estimate, which marks the slowest decrease since the economy began to contract in 2015 and a significant improvement over Q1 when it shrank 1.2%. Although economic growth is absent, recent data suggest that the recovery remains on track. In July, industrial production surprised with a contraction after three consecutive increases, yet a fourth consecutive drop in unemployment offset the miss in industrial output. Furthermore, the contraction in exports in July was the softest in nearly two years and the manufacturing PMI jumped into expansionary territory in August after contracting in July. Ahead of the 18 September parliamentary election, polls suggest that the ruling United Russia party (UR) of President Vladimir Putin has lost popularity, slipping below the threshold needed to secure the majority of seats in the Duma.

The economy has undergone a painful adjustment and the contraction appears to have softened out in H1. Economic activity is seen as strengthening gradually in H2 and analysts project that GDP will contract 0.7% in 2016, up 0.1 percentage points over last month’s forecast. Nonetheless, risks to the outlook remain due to the slow recovery in oil prices and Brexit-related uncertainty. For 2017, analysts see the economy rebounding and expanding 1.3%. 

UKRAINE | Recovery remains fragile despite GDP rebound in Q2 

The economic recovery remains fragile despite the improvement seen in GDP in Q2. Recent data suggest that the economy entered the third quarter on a weak footing after increasing 1.3% year-on-year in Q2, the fastest pace of growth since Q4 2013 and a significant improvement on Q1’s anemic 0.1%. In July, industrial production contracted for a second consecutive month. The country remains reliant on external support and the IMF continues to delay the next tranche of funding under its Extended Fund Facility (EFF). On 22 August, Finance Minister Oleksandr Danyliuk warned that the budget for 2017 might need to be cut if Ukraine does not receive the payment by the end of 2016.

The FocusEconomics panel sees the economy growing 1.2% this year, supported by a strong rebound in private consumption and fixed investment. This month’s projection is unchanged over the previous month as significant challenges remain, including payment of the remaining IMF funds, political instability and the implementation of the Fund’s program. A renewed security threat is also clouding the outlook. For 2017, the panel sees GDP growth accelerating to 2.4%. 

See the Full FocusEconomics CIS Countries Report     

INFLATION | Inflation ticks down in July and expectations fall

Inflation in the CIS moderated in July after three consecutive months of acceleration. According to a regional estimate, inflation edged down from 8.2% in June to 8.0% in July. The lower reading was mainly the result of a further annual decline in consumer prices in Armenia as well as a slower easing in inflation in Kyrgyzstan, Moldova and Russia.

As the majority of currencies in the region have stabilized following the shockwaves from the Brexit vote and central banks in the region are maintaining a tight monetary policy, inflation is expected to continue falling in the coming months. The forecasters we surveyed this month expect inflation in the CIS to end this year at 7.2%. This month’s forecast was cut by 0.2 percentage points over the previous month’s Consensus and marked a third consecutive downward revision. Looking beyond this year, analysts predict that inflation in the region will fall further to 5.9% in 2017.

Written by: Ricardo Aceves, Senior Economist

Sample Report

Looking for forecasts related to in CIS Countries? Download a sample report now.


CIS Countries Economic News

  • CIS Countries: CIS Countries

    March 3, 2019

    Q4 2018 pick-up thanks to strong late-year Russian outturn Last year’s uneven recovery of the Commonwealth of Independent States (CIS) economy picked up in the fourth quarter amid a seemingly broad-based expansion underpinned by improving extractives-sector activity and a construction boom in Russia, the region’s heavyweight.

    Read more

  • CIS Countries: Economic Snapshot for the CIS Countries

    February 6, 2019

    Activity improves in 2018 despite sanctions and EM turmoil The economy of the Commonwealth of Independent States (CIS) gained momentum in 2018, despite a rollercoaster of a year for emerging-market economies.

    Read more

  • CIS Countries: Growth softens in Q3; temporary pick-up likely in Q4

    January 9, 2019

    A more complete dataset revealed that the economy of the Commonwealth of Independent States (CIS) grew faster-than-previously estimated in the third quarter of 2018, with regional GDP expanding 1.9% annually.

    Read more

  • CIS Countries: CIS Countries

    November 28, 2018

    CIS economy stutters in Q3; tensions between Russia and Ukraine flare up A preliminary estimate revealed that growth slid notably in the Commonwealth of Independent States (CIS) in the third quarter.

    Read more

  • CIS Countries: Economic Snapshot for the CIS Countries

    November 2, 2018

    Growth slides in Q3 The recovery in the Commonwealth of Independent States (CIS) is expected to have taken a breather in the third quarter, after growth shot up in the second quarter.

    Read more

More news

Search form