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Regional Economic Prospects in the EBRD Regions:The return of runaway prices: Dealing with expensive food and energy

Auteur : Koczan Zsoka, Plekhanov Alexander, avorcik Beata
Année de Publication : 2022
Type : Rapport
Thème : Repères du développement économique
Couverture : Maroc

Résumé/Sommaire :

Output in the EBRD regions increased by 6.7 per cent in 2021 after contracting by 2.5 per cent in 2020. The war on Ukraine has, however, been having a profound impact on the economies in the EBRD regions. Output in the EBRD regions is expected to grow by 1.1 per cent in 2022. This represents a 0.6 percentage point downward revision compared with the forecast made in March 2022 (and a 3.1 percentage point downward revision compared with the forecast made in November 2021). The revision since March is driven mostly by a larger‐than‐previously‐expected contraction in Ukraine as the war drags on.
Growth in the EBRD regions is forecast to recover to 4.7 per cent in 2023. A downward revision of 0.3 percentage points since March reflects mounting inflationary pressures in the global economy and the EBRD regions. Projections are subject to major downside risks should hostilities escalate or should exports of gas or other commodities from Russia become more restricted. For instance, in a scenario where gas supplies are further disrupted, output per capita in the EBRD regions could be 2.3 per cent lower in 2022 and 2 per cent lower in 2023 than in the baseline scenario.
Commodity and food prices have increased sharply in recent months. Oil prices are elevated and gas prices in Europe are above historical highs and around four times the level in the United States, putting European producers at a disadvantage. Prices of wheat, corn, soybeans and other agricultural commodities have also risen rapidly. Many economies in the EBRD regions are highly dependent on gas in their energy mix while some economies in the Caucasus and southern and eastern Mediterranean rely heavily on wheat imports and have historically sourced wheat from Russia and Ukraine. Recent increases in food and energy prices added to inflationary pressures, which were already high owing to the rebound in global demand as Covid‐19 restrictions were being phased out. Average inflation in the EBRD regions reached 11.9 per cent in March 2022, approaching the level last seen at the end of 2008. Energy and food account for a higher share of consumption of poorer households, and they are therefore experiencing even higher effective rates of inflation.
Policymakers have turned to a wide range of measures to mitigate the effects of higher energy and food prices on firms and households, often facing a trade‐off between the effectiveness of such measures and the administrative capacity required to implement them. Complex trade‐offs also arise between the extent of support afforded to lower‐income households, the overall fiscal cost, the environmental impact of such measures and their public perception. For instance, price subsidies per unit of consumption (most common in the EBRD regions and in advanced economies) are easy to implement and communicate but are poorly
targeted and encourage overconsumption and greenhouse gas emissions. On the other hand, means‐tested support to lower‐income households, which has been introduced or scaled up in around 30 per cent of economies in the EBRD regions, can be well‐targeted and cost‐effective but requires high administrative capacity and a clear communication strategy.
In addition to the impact of high food, energy and metals prices, some economies in the EBRD regions are further affected through trade, tourism and migration‐remittance links to Russia. Russia is an important trade partner for some economies in the Caucasus and, to a lesser extent, in the Baltics and Central Asia. Central Europe is also closely integrated in manufacturing supply chains with Ukraine. Economies in Central Asia are vulnerable to drops in remittances from Russia, as migrants return home, the rouble faces limited convertibility and flight connections are reduced. In 2019, spending by Russian tourists amounted to between 1 and 2 per cent of GDP in Estonia, Montenegro, and the three Caucasus countries.
The initial market reactions to the invasion of Ukraine largely reflected a reassessment of geopolitical risks in light of the war. While some initial currency depreciations have been reversed (for instance, in Georgia and the Kyrgyz Republic), economies with weaker fiscal and external positions as well as higher reliance on imports of wheat, including Egypt and Turkey, have seen further rises in bond yields and weakening of their currencies. The conflict resulted in the largest movement of people seen in Europe since the Second World War. As of mid‐April, over 5 million Ukrainians had left the country. While in the short term, the refugee influx requires governments to find additional financing for schooling, health care and housing, in the longer term it could provide a boost to the regions’ rapidly ageing economies.
In light of these developments, output in central Europe and the Baltic states is expected to increase by 3.2 per cent in 2022 and 3.4 per cent in 2023, with broad‐based downward revisions for 2022 relative to the March Update, reflecting higher food and energy prices and supply chain disruptions.
GDP in the south‐eastern European Union is expected to grow by 2.6 per cent in 2022 and 3.2 per cent in 2023, revised down somewhat since the March Update. Output in the Western Balkans is expected to grow by 3.2 per cent in 2022 and 3.6 per cent in 2023.
The larger than anticipated contraction in Ukraine weighs on the forecast for eastern Europe and the Caucasus. Output in the region is expected to contract by 18.4 per cent in 2022, rebounding to growth of 17.5 per cent in 2023 (excluding Ukraine, the rest of the region is forecast to grow by 3.3 per cent in 2022 and 3.4 per cent in 2023).
Growth in Central Asia is expected to slow to 3.1 per cent in 2022 and 3.7 per cent in 2023, with a significant downward revision to Mongolia’s growth in 2022 since the March Update reflecting the resurgence of Covid‐19 in China resulting in additional border restrictions. The forecasts also reflect Central Asia’s strong economic links with Russia’s economy, which is expected to contract by 10 per cent in 2022 and stagnate in 2023. GDP growth in Turkey islikely to remain muted at 2 per cent in 2022, supported by a modest recovery in net exports. Growth is forecast to increase to 3.5 per cent in 2023, driven by rising household and government spending ahead of the planned elections.
Output in the southern and eastern Mediterranean is expected to grow by 2.5 per cent in 2022 and 4.8 per cent in 2023. Tunisia’s 2022 growth has been revised down since the March Update on account of increasing vulnerabilities and continued uncertainty; Lebanon’s forecast for 2023 has been revised up.

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