The World Bank has published another forecast for the development of the world economy - for the period up to 2021. Experts expect a moderate growth, but fear that negative factors may violate these forecasts. Ekaterina Vashakmadze, chief economist at the Global Bank's Prospects Department, told Anton Uspensky about what to expect in the post-Soviet countries.
EB: As you know, we expect a decline in economic growth in developed economies in 2019 and 2020. Economic growth in these countries is projected to decline from 2.1 percent in 2018 to 1.7 percent in 2019 and slow down further to 1.5 percent in 2020.
In the United States, a slowdown in economic activity is expected from 2.9 percent in 2018 to 2.5 percent in 2019. This is mainly due to the effect of delayed action, tightening of monetary policy against the background of restrictions in the sphere of supply. The slowdown in growth rates to 1.6 percent in 2020 is mainly due to the gradually decreasing effect of tax exemptions that were implemented earlier. In the Euro zone, a slowdown in economic growth is expected from 1.8 percent in 2018 to 1.2 percent in 2019, especially in the areas of trade and manufacturing. It is expected that economic activity will slightly recover in 2020, but only slightly - up to 1.4 percent amid limited leverage of economic policy.
AU: The World Bank’s forecast for Russia for the current, 2019, year is even lower than what the UN Department of Economic and Social Affairs is counting on. You have 1.2 percent, while UN economists have 1.4 percent. What are the reasons?
EB: The report on the global economic outlook takes into account the operational estimates of the GDP of the first quarter of 2019, published on May 17, which showed that Russia's economic growth has fallen more than expected. Incoming trade data also indicate sluggish economic activity at the beginning of the year, including energy exports and minerals. The effect of raising the value-added tax, reducing oil production, as well as low oil prices, which we reduced our forecast from $ 67 to $ 66 per barrel in 2019, and harsher external conditions force us to revise the forecast for 2019 down to 1.2 percent from 1.5 percent earlier.
AW: Why do you expect the situation to improve in 2020? You have a forecast of 1.8 percent. Is this possible even despite the decline in oil and gas prices?
EB: The fact is that despite the fact that energy prices are an important component of the prospects for the Russian economy, since Russia introduced the fiscal rule in 2017 to neutralize the effect of oil price fluctuations on government spending, this dependence has decreased. Despite the problems that I have identified, further growth must be partially supported by public investment. This is a plan, the implementation of which should begin by the end of this year. The main part of the plan will be focused on infrastructure projects, and a part of its financing should come from the newly introduced value added tax. Thus, it is expected that economic growth will accelerate in 2020 and 2021 to 1.8 percent unchanged compared with the January forecast.
AW: In general, for the countries of the region, for the post-Soviet space, what risks do you see, and maybe favorable circumstances?
EB: To date, the prospects for the region are still burdened by significant risks of a negative development of the situation. The main risk factor is that the economic downturn of the most important trading partner, the Eurozone, may be deeper than expected. Weak external demand in the Eurozone can significantly reduce the export volume of European countries to Central Asia. Also, lower than the predicted rates of economic activity in Russia may adversely affect the volume of remittances, which constitute a significant share of income in countries such as Kyrgyzstan, Moldova, Tajikistan. The risk is present and mainly related to the development of the main trading partners of these countries.
AW: In such countries as Belarus, whose economy usually develops in tact with the Russian, what are the prospects there?
According to forecasts, in the long term - a weakening of economic growth from 3 percent in 2018 in Belarus to 1.8 percent in 2019. This weakening will continue, according to our forecasts, in 2020, as Belarus is also very closely connected with the Eurozone. But then, by 2021, growth will stabilize and will be at the level of 1.2 percent.
AW: And what is the situation in the countries of the Caucasus region?
EB: In this subregion, economic growth is expected to accelerate. This is mainly due to the acceleration of growth in Azerbaijan: due to infrastructure activity, due to the fact that the economy is gradually coming out of the cyclical deceleration that was in 2016, which contributes to growth, in forecast, up to 3.3 percent from last year when it was 1.4 percent.
In Armenia, a fairly steady growth of 4 percent in 2019 is predicted. Georgia is in a stable situation: in 2018, growth was at the level of 4.7 percent, and this year we expect 4.6 percent.
But I would say that in almost all countries these levels of growth have been revised downwards.
AW: And the same is true, probably, for the countries of Central Asia, for Kazakhstan in particular?
EB: In Central Asia, we did not revise growth at this stage. We expect a mild decline. From 4.7 percent to 4.2 percent. In Kazakhstan, economic growth is expected to decline from 4.1 percent in 2018 to 3.5 percent in 2019. This forecast has not been revised.
In Turkmenistan and Uzbekistan, as in large commodity exporters, a sufficiently strong economic growth is predicted. In Turkmenistan, 5.6 percent in 2019, in Uzbekistan - at the level of 5.3 percent.
Rather strong economic growth in Tajikistan is at the level of 6 percent, which is less than last year (7.3 percent). In Kyrgyzstan, growth is weaker, but acceleration is projected from 3.5 percent last year to 4.3 percent in 2019.
At this stage, everything looks quite optimistic. But there are potential risks. And we think that there is a high probability that they materialize. In this case, naturally, the forecasts will be revised.
AW: When you talk about risks, what could you, for a general understanding, give examples? What could have a negative impact on the development of the countries of the region or, more generally, on international development?
EB: We would have identified three risks at this stage. The biggest risk is the growth of trade barriers. The second risk is a repetition of the financial turmoil that has affected many economies in the past year. As well as a sharper-than-expected decline in the economy of large players. Here we mean the United States of America, the Eurozone and China. If the recession in these three economies is stronger than it is predicted, through different channels these shocks will be transmitted to everyone. And shocks are the impact on financial flows, trade, money transfers. One of the main shocks is the weakening of investor confidence. And for our region, an important factor is the situation on the markets for raw materials - both prices and volumes of supply and demand.
Here are the main channels through which shocks, shocks can be transmitted to the economies of our region.