Central Asia will decelerate under COVID-19 after steady acceleration in recent years.
According to the #AsianDevelopmentBank latest report: growth in the subregion will drop to 2.8% in 2020 as economies falter worldwide and drag down global commodity prices.
What are the main factors of such decrease?
In short:
Lower petroleum prices and sluggish production will weaken oil exporters, with growth slowing to 0.5% in #Azerbaijan and 1.8% in #Kazakhstan, the largest economy in the subregion, slowed as well as by reduced public investment.
Fiscal consolidation and lower remittances from the Russian Federation will weaken growth in #Tajikistan.
Countries' highly tourism- and trade-dependent economy will be particularly vulnerable to COVID-19 as closed borders and monetary tightening grind growth to a halt in 2020.
Growth in Armenia, a metal producer notable for its sales to #China, will fall sharply this year, and slower mineral exports to China will slow growth less dramatically in the #KyrgyzRepublic and Uzbekistan.
Lastly, according to the ADB subregional inflation at 7.6% this year will be little changed as mixed projections balance out. Monetary tightening is expected to lower inflation in Georgia and #Uzbekistan both years and in Kazakhstan in 2021.
Region's Economic Prospects in Details
Kazakhstan 🇰🇿
Expansionary fiscal policy helped lift growth in 2019 with strong consumption and investment. Price controls and tight monetary policy trimmed inflation. Growth is projected to plummet in 2020 because of COVID-19 and lower oil export earnings before rebounding in 2021 from a low base with stronger oil production and expansionary fiscal policy. Administrative and monetary measures should help contain inflation, but a smaller trade surplus will widen the current account deficit. Social assistance needs to be made more sustainable.
Regarding economic prospects, doubly hit by the plunge in oil prices and other economic implications of COVID-19, growth is forecast to drop to 1.8% in 2020 as oil and gas production recedes with prices in decline, despite the introduction of stimulus packages aiming to boost infrastructure investment and maintain social expenditure. Substantial downside risks to the outlook stem from a protracted COVID-19 crisis and a continued plummeting of global oil prices, which could hit Kazakhstan’s economy more than anticipated in the absence of measures by the Organization of the Petroleum Exporting Countries and other leading producers to stabilize prices. In 2021, growth is expected to rebound to 3.6%, supported by rising hydrocarbon and manufacturing output and higher investment.
Kyrgyz Republic 🇰🇬
Growth accelerated in 2019, driven by mining and manufacturing. Inflation decelerated as substantial food imports held prices down, and high gold exports narrowed the current account deficit. Growth is projected to decelerate in 2020 in tandem with a slowdown in the country’s main trade partners amid the global COVID-19 outbreak, but recover in 2021 as gold exports rise. For a third consecutive year, the government is promoting development in lagging regions.
Regarding economic prospects, growth is forecast at 4.0% in 2020. Although gold exports could benefit from global financial volatility, import disruption under COVID-19 affecting raw materials, equipment, and food from the People’s Republic of China and other countries will hold back manufacturing, construction, and other import-dependent industries. If the outbreak worsens and border closures are prolonged, growth could slow even further. It should then pick up to 4.5% in 2021, assuming recovery in the region.
Tajikistan 🇹🇯
Acceleration across sectors and a rebound in remittances boosted growth in 2019. Higher domestic demand lifted inflation, but the current account deficit narrowed slightly. Lower public investment, along with weak remittances and foreign direct investment resulting from the COVID-19 outbreak, are projected to slow growth in 2020 and again in 2021, with inflation remaining in single digits. The current account deficit will be little changed as rising electricity exports offset low remittances. Reforming tax policy is important to spur investment.
With the global outbreak of COVID-19, growth is forecast to slow to 5.5 % in 2020 and 5.0% in 2021. Fiscal consolidation will reduce public investment, a weak business climate will discourage private investment, and low remittances from sluggish growth in the Russian Federation will limit domestic consumption. A pickup in private credit along with increased production and exports will support growth, as will additional electricity generation and improving economic relations with neighboring countries. Downside risks stem from weakness at two large banks and several state-owned enterprises, along with the possibility of greater declines in remittances, foreign direct investment, and tourism receipts as a result of COVID-19.
Turkmenistan 🇹🇲
Faster expansion in hydrocarbon production modestly spurred growth in 2019. Inflation remained in double digits, and the current account fell into a marginal deficit. Growth is projected to moderate this year and next, with a corresponding decline in inflation. Robust imports to supply government investment projects are projected to widen the current account deficit in 2020 and 2021. Risk persists, given the likely global economic slowdown caused by the COVID-19 pandemic and a fall in commodity prices. Extensive reform is needed to diversify exports and mitigate vulnerability to commodity price shocks.
Growth is projected to moderate to 6.0% in 2020 and 5.8% in 2021 as expansion slows in hydrocarbon output and exports. On the supply side, industry is projected to expand by 6%–7%, reflecting gains in agricultural processing, light industry and food products, construction materials, and chemicals—all areas that have been targeted for import substitution. With the government having announced support for farmers, agriculture is forecast to expand by 4% in both years, while growth in services is projected to slow to 5%–6% as growth in domestic demand moderates.
Uzbekistan 🇺🇿
An improved business climate spurred investment, boosting growth. Inflation moderated, and higher exports narrowed the current account deficit. Growth is anticipated to slow in 2020 with lower demand and prices for natural gas and copper, as well as the effects of COVID-19, then recover in 2021 as industry and agriculture pick up. Monetary tightening will trim inflation further in 2020 and 2021, and slower import growth will narrow the current account deficit. Inflation must be contained even as structural reform continues.
Growth is likely to slow to 4.7% in 2020 with the adverse impact of COVID-19, along with lower demand and prices for natural gas and copper, despite support from the government’s stabilization measures. It is expected to reaccelerate to 5.8% in 2021 on higher investment and further gains in agriculture and industry from structural reform. Risks to stability remain from persistent inflation.
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