EDB releases Macroeconomic Review report for October 2021
YEREVAN, October 20. /ARKA/. The Eurasian Development Bank (EDB) has released the Macroeconomic Review report for October 2021, which is an interim publication between macroeconomic forecasts and contains statistical information on the main macroeconomic indicators of the EDB member countries: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan.
The report says that the global markets, especially the energy one, in September and in the first half of October were swept by a new, rather specific wave of volatility. Particular attention was drawn to the unprecedented rally in the natural gas market, the cost of which in Europe in September was almost five times higher than before the pandemic.
This is largely the result of strong demand growth amid cold winters and hot summers, as well as the accelerated transition to green energy and, possibly, speculative trading. Against the backdrop of rising gas prices, coal and oil are becoming more expensive - the latter for the first time since 2018 rose above $80 per barrel.
“Fundamentally, all of this is a manifestation of asset inflation as a result of super-soft monetary policy in the United States, the eurozone, etc., coupled with Covid-damaged supply chains. We do not think that the price spiral will continue to unwind. However, in the coming months, the effects of the price rally will have a pro-inflationary impact and a restraining effect on production,” said Yevgeny Vinokurov, chief economist at the EDB and the Eurasian Fund for Stabilization and Development (EFSD).
He also notes the turmoil in the financial markets. The yields on the ten-year US government bonds again exceeded 1.5% on the background of expectations of the curtailment of the quantitative easing program in the United States and the Fed's forecasts for a rate hike for 2022. A slowdown in the Chinese economy has also emerged on the agenda.
The risks for the real estate market and the IT sector are most clearly manifested, but fundamentally we are talking about a long-term structural shift in China. These factors lead to higher yields on bonds in developing countries, which in the medium term could trigger problems with debt sustainability.
Russia and Kazakhstan are out of the risk zone, given their relatively low debt levels and significant reserves.
The dynamics of interest rates in developing countries is largely influenced by the increased inflationary risks. This problem is not bypassed by the EDB member states. Thus, in Russia, inflation in September jumped to 7.4% y / y, in Kazakhstan and Armenia - to 8.9% y / y, and in Belarus for the first time since December 2016 it became double-digit - 10.2% y / y. Food is becoming more expensive, including due to a decrease in the yield of certain crops and increased prices in the world. Problems with the supply of goods remain, inflationary expectations of the population remain elevated.
“We continue to believe that transport and logistics difficulties and a surge in raw material prices are inherently temporary phenomena, not structural changes. The global economy will show strength and flexibility - and will neutralize these problems. Chips, containers, and energy supplies are all solvable problems,” Vinokurov notes.
However, according to him, the latent power of "covid damage" in the global economy, as well as the strongest influence of monetary policy, are such that neutralizing the inflationary impact of these factors may take longer than expected. The risks of inflation fixing at elevated levels relative to the goals of monetary regulators are increasing.
"In this regard, we assume a further increase in key interest rates in the member states of the Bank until the end of this year. In Russia, we expect an increase in the key rate in October by 0.25-0.5 pp, to 7-7.25 %, and in Kazakhstan - by 0.25 pp, to 9.75%," Vinokurov said, pointing out the high risks of a decline in economic activity.
“They (risks) are associated both with the development of the pandemic and with the situation in the global economy, including the threat of a slowdown in China's growth and the impact of hydrocarbon prices on industrial production in Europe. rate, "he notes.
About EDB
The Eurasian Development Bank (EDB) is an international financial institution carrying out investment activities in the Eurasian space. For 15 years, the EDB has been promoting the strengthening and expansion of economic ties and the comprehensive development of the participating countries: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan.
The authorized capital of the EDB is US $ 7 billion. The main share in the EDB's portfolio are projects with an integration effect in the areas of transport infrastructure, digital systems, green energy, agriculture, industry and mechanical engineering. The Bank is guided in its activities by the UN Sustainable Development Goals and ESG principles. - 0--
