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Regional Economic Prospects May 2016 Modest pick-up amid continued uncertainty European Bank for Reconstruction and Development May 2016 Key developments, outlook and risks 2 Average growth in the region to pick up modestly from 0.5% in 2015 to 1.4% in 2016; 2.5% in 2017 At the same time, outlook for 2016 has weakened slightly since November 2015 3 Source: IMF WEO; EBRD forecasts Divergent trends driven partly by external factors Modest global growth and weak Eurozone growth constrain external demand Low commodity prices and continued recession in Russia are weighing on the outlook for Central Asia, Eastern Europe and the Caucasus (EEC) US monetary tightening led to lower capital inflows to the region, while ECB QE program supports growth in CEB, SEE 4 Source: IMF WEO; EBRD forecasts Oil prices have recovered somewhat from January lows But are lower than at the time of the previous REP forecasts 5 Source: Bloomberg Currencies of major oil exporters adjusted, broadly preserving local currency price of oil 6 Source: Bloomberg Russia remains a leading economic partner for many economies in EEC and Central Asia Even as the weight of China as an economic partner has been rising 7 Source: UN Comtrade; IMF; CBR; national authorities; EBRD calculations Capital flows to the region declined as the US Fed started tightening monetary policy Mirrored by lower inflows in emerging markets in general 8 Source: IIF; EBRD calculations Accommodative ECB policies benefit CEB and SEE in particular ECB expanded QE, announced TLTRO II in March 2016 9 Source: European Central Bank; Bloomberg Credit growth has slowed down markedly in EEC and Central Asia, as well as Turkey 10 Source: National authorities via CEIC; EBRD calculations Risks and vulnerabilities Geopolitical tensions in and around the region A sharp deceleration in China’s growth A prolonged weakness in commodity prices − exacerbating pressures on Russia, as well as countries in Central Asia and Eastern Europe and the Caucasus Brexit vote sparking higher volatility in financial markets – with implications for Central and south-eastern Europe in particular 11 Key country developments 12 Consumption supports growth in CEB and SEE, owing in part to terms-of-trade gains 13 Source: EUROSTAT; EBRD calculations. Includes CEB, Romania and Bulgaria. Following strong 2015 outcome due to one-off factors, Turkey’s growth is projected to moderate to 3.2% Current account deficit decreased on the back of lower energy import bill partly offsetting lower non-FDI capital inflows 14 Source: National authorities via CEIC In Russia, a drop in private consumption is partly offset by import contraction 15 Source: National authorities via CEIC Azerbaijan hit by oil price shock, but substantial liquidity buffers cover 25 months of imports 16 Source: National authorities; IMF; EBRD estimates Remittances to CA & EEC declined by 40% in US$ terms – mostly due to exchange rates Near constant in roubles; down 20% in local currencies of recipient countries Downward trend continued in Q1 2016 17 Source: CBR; CEIC; Bloomberg and EBRD calculations In Ukraine, marked improvement in twin deficits Combined government and Naftogaz deficit decreased to 3% of GDP Current account deficit of 9% of GDP in 2013 almost eliminated 18 Source: National authorities; IMF Blows to tourism and poor export performance weigh on growth in Egypt and Tunisia 19 Source: National authorities via CEIC and Haver, seasonally adjusted data for tourism. Overall, growth is expected to pick up in 2016 but slightly less than projected in November Upward revisions mainly in SEE, CEB and Turkey; Downward revisions in EEC, Central Asia and SEMED 9.0 7.0 5.0 3.0 -1.0 -3.0 -5.0 Azerbaijan Kyrgyz Republic Belarus Turkmenistan Morocco Tunisia Mongolia Egypt Uzbekistan Estonia Jordan Kazakhstan FYR Macedonia Hungary Latvia Lithuania Slovak Republic Slovenia Albania Bosnia and Herzegovina Cyprus Kosovo Montenegro Serbia Armenia Moldova Ukraine Russia Tajikistan Romania Poland Turkey Bulgaria Georgia Croatia Greece 1.0 -7.0 Source: EBRD forecasts 2016 (REP May 2016, %) 2016 (REP Nov 2015, %) Change Nov.-May, pp 20