In its latest Global Economic Prospects report, the World Bank revised slightly upward its estimate of economic performance in 2022 in the Europe and Central Asia region. In the January edition, the bank had estimated that growth slowed to just 0.2 percent across the wider region, or 4.2 percent when excluding Russia and Ukraine. Even that higher figure, however, was just over half the growth rate seen in 2021.
The June report upgraded its estimate of 2022 growth in the Europe and Central Asia (ECA) region to 1.4 percent – still the slowest of all six emerging market and developing economy (EMDE) regions. Setting aside Russia and Ukraine improves the numbers to an estimated growth rate of 4.8 percent last year, but that’s in part a math trick. Regional economies and the global economy are intertwined. Some areas may do better at a particular moment in time, but we’re on this spinning rock together.
Importantly, the bank noted that the “1.3 percentage points forecast upgrade since January for the region is mainly because of an upward revision for Russia.”
For reference: ECA includes Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Hungary, Kazakhstan, Kosovo, Kyrgyzstan, Moldova, Montenegro, North Macedonia, Poland, Romania, Russia, Serbia, Tajikistan, Turkey, Ukraine, and Uzbekistan.
“Economic prospects in Europe and Central Asia (ECA) continue to be held back by the Russian Federation’s invasion of Ukraine,” the World Bank said in its recent report, hedging its forecasts with the warning that “the outlook remains particularly uncertain owing to Russia’s invasion of Ukraine and its repercussions.” The baseline forecast, the report stated, “assumes that the invasion continues throughout the forecast period but with no escalation in its intensity.”
The bank cited the “effects of the invasion, high inflation, tight monetary policies, and subdued external demand” as weighing on economic activity across the region into 2023. At present, the bank forecasts growth to stagnate in the ECA region, rising only very slightly to 1.4 in 2023. Anticipation of receding inflation and strengthening demand inspired a forecast that growth will pick back up to 2.4 percent in 2024.
On the back of the COVID-19 pandemic and then the war in Ukraine, the global economic remains “hobbled,” as the World Bank put it. Emerging economies are “struggling just to cope.”
It’s perhaps helpful to compare the estimates and forecasts of June 2023 with those from before the pandemic and the war. In the June 2019 Global Economic Prospects report, the World Bank reported growth in 2018 as moderating to 3.1 percent. The regional difficulty of the day was a recession in Turkey and growth was expected to slow to 1.6 percent in 2019. The lesson here may be that in any region sizable enough, there’s always the possibility of some crisis in one corner or another.
When it comes to Central Asia, our main concern here at Crossroads Asia, the region limps along. Back in June 2019, the Central Asia subregion’s GDP growth was estimated for 2018 as sitting around 4.7 percent, with forecasts of 4.2 percent in 2019 and 4.0 percent in 2020. Of course, 2020 didn’t go as anyone had planned. As of June 2023, the World Bank said that Central Asia experienced a 1.4 percent contraction in 2020, with a recovery to 5.2 percent in 2021. Last year saw regional growth slow to an estimated 4.2 percent in Central Asia, and the present forecast for 2023 envisions a further slowdown to 4.0 percent.
Within Central Asia, as always, there is variation as well. Tajikistan is estimated to have had the best 2022, with growth pegged at 8.0 percent, followed by Kyrgyzstan at 7.0 percent and Uzbekistan at 5.7 percent. Kazakhstan, the most developed economy in the region, is estimated to have grown 3.3 percent in 2022. (Kazakhstan had its own terrible crisis in early 2022, which should not be discounted as impacting its economy).
For 2023, growth in Tajikistan and Kyrgyzstan is expected to slow to 6.5 percent and 3.5 percent, respectively. Uzbekistan is forecasted to see a slightly lower 5.1 percent growth in 2023, while Kazakhstan is the only Central Asian state to have a 2023 forecast higher than its 2022 estimate, at 3.5 percent.
Interestingly, the World Bank said that “[s]lower growth in the Kyrgyz Republic, Tajikistan, and Uzbekistan [estimated for 2023], due to lower remittances from Russia, is offset by robust, energy sector-driven growth in Kazakhstan.”
Since the start of the war in Ukraine, there have been concerns that remittances to Central Asia – on which Tajikistan and Kyrgyzstan are particularly reliant – would drop. While the volume of remittances has continued to grow, the rate of that increase has slowed dramatically. In particular, the World Bank identified sanctions as pushing the cost of sending remittances from Russia up, meaning less money finds its way to Tajik and Kyrgyz pockets back home.
“Such remittances could grow more slowly than projected this year, especially in Central Asia and South Caucasus, where remittances from Russia… were equivalent on average to 12 percent of the GDP of the two subregions during 2010-19,” the bank cautioned.
With slower growth in remittances, and continued inflation, the result is a pinch on Central Asian households. And there are many other risks that could further deflate what small hopes of growth and stability there are.
In particular, the World Bank identifies the potential for the war in Ukraine to increase in intensity, or a prolongation of the conflict, as significant downside risks. There are also the risks posed by geopolitical tensions elsewhere in the ECA region and the ever-looming specter of climate and other disasters – heat waves, droughts, bad winters, earthquakes and so on – that could serve to push the region’s economies back down.