Inflation in the EBRD region has peaked but governments still under pressure

By bne IntelliNews May 17, 2023

Inflation has peaked in Emerging Europe, Central Asia and North Africa, but rising gas prices in the coming winter will keep pressure on household finances, the European Bank for Reconstruction and Development (EBRD) said on May 16.

Consumer price rises in the EBRD's region covering some 40 economies and stretching from Kazakhstan to Hungary and Tunisia peaked at 17.5% in October and have come down to 14.3% in March, the bank's latest regional economic outlook report found.

Some central banks reduced policy rates as growth outlooks weakened, although pressure on finances remains according to the EBRD.

"Particularly in the poorer countries, households are exhausted by the sequence of crisis," said EBRD Chief Economist Beata Javorcik, referring to COVID-19 and the Ukraine war.

"Markets are pricing an uptick in energy prices this autumn and this winter," she told Reuters.

European gas prices remain above the 2017-2021 average levels and exceed the US price of gas by a factor of six.

More than a half of households in the EBRD region were "living from paycheck to paycheck", according to preliminary data from a joint survey with the World Bank conducted between October-April.

If they lost their main source of income, 59% of those households would be able to cover basic expenses for less than a month, Javorcik said.

Budgets in some nations are also under pressure due to rising debt levels and high interest rates. General deficits exceed 5% of GDP in Hungary, Romania, Ukraine and the Southern and Eastern Mediterranean, Reuters reports.

Growth in the EBRD regions is expected to come in at 2.2% in 2023 and 3.4% in 2024, with Central Asia the fastest growing region at 5.2%. Uzbekistan is a leader in the region with growth of over 6% expected this year.

"Relocation of Russian businesses and increased oil exports are providing a boost to growth in Kazakhstan," the report added. Real wage growth in the region is an outlier in a world where salary increases are broadly below inflation rates.

Armenia, Azerbaijan and Georgia are also enjoying strong growth, Javorcik said, in contrast to Central Europe and the Baltic states.

"Remittances from Russia to countries in Central Asia and the Caucasus are still strong, and you also have the intermediated trade," the lender's chief economist said. "This trade replaces only a small fraction of the direct trade from Europe to Russia that disappeared (due to the war), but for some smaller countries is very substantial," she said.

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