CIS Countries Economic Outlook July 2017

Momentum builds in H1 but outlook hinges on commodity prices

CIS Countries: Momentum builds in H1 but outlook hinges on commodity prices

July 20, 2017

A gradual economic pick-up is underway in the economy of the Commonwealth of Independent States (CIS). More complete GDP data confirms last month’s preliminary estimate that regional GDP expanded 1.0% annually in Q1, above Q4’s 0.6% increase. The slow mend of Russia’s economy drove the acceleration, as the regional giant expanded at the fastest pace since Q3 2014. Moreover, firmer activity in Russia had spillover affects across the region sparking higher remittances flows and investment.

Q1’s acceleration marked the fifth consecutive quarter of brighter data and the slow and steady speeding up of the economy is expected to have continued in Q2. FocusEconomics analysts project that GDP increased 1.8% in the April to June period. Incoming figures for Russia are driving the expected pick-up after industrial production expanded at the fastest pace in over five years in May. However, the recent downward turn in oil prices is threatening to act as a road block in the recovery. Oil prices have fallen back to levels seen in 2015, as a supply gut persists. Despite the recent agreement to extend production cuts by OPEC and non-OPEC nations alike, oil prices remain historically low and if a sustained recovery does not materialize will likely hamper growth in many of the region’s oil exporting nations. 

Anemic growth expected this year   

FocusEconomics panelists held their GDP forecast unchanged for a fifth consecutive month and see growth coming in at 1.5% in 2017. While the figure is notably above last year’s 0.1% growth, the projection is still moderate after the sharp contraction the region experienced in 2015 and far below the 4.3% growth averaged from 2010 to 2012. Moreover, downside risks to the figure linger if oil prices do not pick up as expected. Growth is seen rising gradually to 2.0% in 2018.

This month’s stable outlook reflected unchanged forecasts for two of the economies in the region, including heavy-weight Russia. Meanwhile, GDP growth forecasts were upgraded for Armenia, Belarus, Kazakhstan, Kyrgyzstan and Moldova. Azerbaijan and Tajikistan were the only economies for which our analysts cut their projections. Regarding the three countries that are not included in the regional GDP aggregate, analysts lowered the 2017 GDP growth forecasts for Turkmenistan and Ukraine, while Georgia’s outlook was left unchanged. 

See the Full FocusEconomics CIS Countries Report     

BELARUS | Weaker currency fuels brighter export outlook 

After emerging from recession in Q1, the economy seems to be gaining steam, fueled by strong industrial production. Likewise, the recovery in Russia—Belarus’ main trade partner—is having positive spillover effects in the local economy. Economic activity should continue improving throughout the year thanks to a weaker currency, which will foster exports, looser monetary policy and an improving business environment. Despite these recent improvements in the economy, consumption will remain subdued as a result of high inflation.

Belarus’ economy is expected to make a slight recovery this year on the back of stronger growth in the CIS region as well as a revival in exports. Against this backdrop, FocusEconomics Consensus Forecast panelists forecast that GDP will increase by just 0.6% in 2017, which is up 0.2 percentage points from last month’s forecast. For 2018, panelists see growth picking up to 1.5%. 

KAZAKHSTAN | Mining production booms in May 

On the heels of a strong Q1, economic activity—as measured by the Statistical Institute’s short-term economic indicator—accelerated further in the first two months of Q2 and should bode well for another strong quarter of growth. Moreover, industrial production posted another strong month in May on the back of a broad-based expansion that was led by a surge in mining output, which has recovered considerably in recent months with the help of higher commodity prices. Another show of strength for the domestic economy came as retail sales grew at the fastest pace in over two years in May, likely benefitting from the recent downtick in unemployment.

Higher energy prices and improved crude supply will likely sustain an uptick in growth this year, and a healthier energy sector is likely to support a recovery in fixed investment. Lower inflation is expected to give household spending a much-needed boost, while the ongoing recovery in neighboring Russia is expected to support the external sector. However, the possibility of further delays to the privatization of key industries is weighing on the outlook. Forecasters raised Kazakhstan’s 2017 GDP growth forecast by 0.1 percentage points relative to last month’s forecast and now expect GDP to grow 2.6%. In 2018, analysts expect an acceleration to 3.0%. 

RUSSIA | Sanctions and oil prices threaten activity

The recovery in economic activity gained momentum in Q2. In May, retail sales expanded for the second consecutive month and the unemployment rate hit an eight-month low, corroborating that conditions for households are improving. Better economic conditions both at home and abroad are also translating into increased industrial production, which expanded at the fastest pace in over five years in May. There are, however, considerable risks that could threaten the economic recovery: on 28 June, the European Union extended its economic sanctions on Russia to 31 January 2018. Moreover, signs that the global oil glut is not subsiding despite the key suppliers’ extension of the production cuts into 2018 are keeping crude prices subdued, casting a long shadow over the extent and sustainability of Russia’s economic rebound.

The economy will return to growth this year following a nearly two-year-long recession on the back of higher oil prices, a lower unemployment rate and more accommodative monetary policy conditions. The FocusEconomics panel sees GDP expanding 1.3% in 2017, which is unchanged from last month’s forecast. For 2018, analysts see GDP growth accelerating to 1.7%. 

UKRAINE | Ceasefire offers glimmer of hope for agricultural production but far from a sustainable solution to conflict

The government and Russian-backed rebels controlling the eastern Donbas region agreed on a fresh ceasefire on 21 June, which came into effect from 24 June and is set to last until 31 August. The deal is timed with the region’s harvest season to reduce the impact of the crisis on agricultural production. Months of heightened tensions preceded the ceasefire, which escalated into a full blown trade halt in Q1, impeding the pace of recovery at the start of this year. The final result for Q1's GDP growth was a moderate 2.5% annually, a slight mark up from the preliminary estimate, but nearly half the pace of the previous quarter. While the ceasefire offers little promise for a lasting resolution as all previous pacts have thus far been violated, the settlement does present a glimmer of optimism for short-term growth prospects. Available data for Q2 signals that the recovery continued at a moderate pace: industrial activity rebounded in May and private consumption is likely benefiting from this year’s hike in minimum wage. Panic struck the country on 28 June, however, as a cyberattack was unleashed on prominent private companies and government entities, temporarily paralyzing computer networks. 

Slow reform momentum and ongoing conflict in the Eastern regions are hindering the country’s growth prospects. However, a less tight monetary policy stance, stabilizing inflation and hike in wages should allow private consumption to fuel modest growth this year. Our panelists shaved off a further 0.1 percentage points from Ukraine’s GDP forecast this month. The FocusEconomics panel sees GDP rising by 2.1% this year and growth picking up to 2.9% in 2018. 

See the Full FocusEconomics CIS Countries Report     

INFLATION | Price pressures stabilize in May

Inflation in the CIS economy was unchanged in May, coming in at April’s 4.5%. The result marks the lowest level seen in recent years as inflation has finally come under control in Russia and has almost reached the Central Bank’s target of 4.0%.

Inflation is expected to increase towards the end of the year. The analysts we surveyed forecast inflation to end 2017 at 4.8%, which is unchanged from last month’s projection. Going forward, inflation is projected to edge down to 4.7% in 2018.

Angela Bouzanis

Senior Economist 

Sample Report

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


CIS Countries Economic News

More news

Search form