(AGENPARL) – gio 16 febbraio 2023 OFFICIAL USE
EBRD news story
High gas prices and inflation dampen growth in EBRD regions
Economies “not out of the woods yet”
[EBRD_EU-01_light]
FOR IMMEDIATE RELEASE
http://www.ebrd.com/news
Date: 16/02/2022
Contact: Marcus Warren
Twitter: @ebrd
Sector: Economics
– Output in the EBRD regions expected to grow by 2.1 percent in 2023
– Latest 2023 forecast is down from 3.0 per cent last September
– Growth predicted to pick up to 3.3 per cent in 2024[]
Growth forecasts have been adjusted downwards in more than half of the 36 economies in which the EBRD works, with very few upward revisions.
Growth in the Bank’s regions is expected to pick up to 3.3 per cent in 2024.
Nevertheless, growth exceeded expectations, as consumers in emerging Europe continued to spend private savings accumulated during the pandemic.
However, in real terms, such levels are comparable to the highs of the 1980s and amount to gas prices six times higher than those across the Atlantic.
At the same time, average inflation in the EBRD regions dropped to 16.5 per cent in December after peaking at 17.5 per cent in October (a rate last recorded at the end of the transition recession in 1998).
In the long term, the phasing out of the inefficient use of gas is likely to be positive for Europe’s competitiveness, the new report points out.
In the short term, however, consumers heating their homes, firms in gas-intensive industries and governments subsidising energy bills remain squeezed by the historically high prices.
Government energy subsidies in central and south-eastern EU economies, for example, are estimated to account for around 3.6 per cent of gross domestic product (GDP) on average.
The impact of the earthquakes on overall economic activity in 2023 is likely to be limited to 1 per cent of GDP, with the boost from reconstruction efforts in the later months of the year likely to partly offset the damage to supply chains and infrastructure.
Output in central Europe and the Baltic states is expected to increase by 0.6 per cent in 2023. In 2022, the region’s economies proved more resilient than expected, but falling purchasing power, weaker external demand from advanced Europe and elevated financing costs are expected to weigh on growth this year. Growth is forecast to pick up to 2.7 per cent in 2024, still below medium-term potential, reflecting continued high energy prices and short-term costs associated with the green transition.
Countries in the south-eastern European Union have also been resilient to shocks, but experienced sharply lower growth rates in the second half of 2022. Growth of 1.5 per cent is forecast in 2023, picking up to 3.1 per cent in 2024.
Similarly, while economic growth in the Western Balkans moderated in 2022, household consumption proved resilient. Growth in 2023 is expected to slow to 2.2 per cent, reflecting weak external demand, persistently high inflation and tighter financing conditions. Growth is seen picking up to 3.4 per cent in 2024.
Output in Central Asia is expected to grow by 4.9 per cent in 2023. This slight upward revision from September reflects the boost from high oil and gas prices for commodity exporters, increased inflows of labour, capital and remittances, and a rise in intermediated trade. Output growth is seen picking up to 5.4 per cent in 2024 on planned infrastructure investments, high commodity prices and the relocation of Russian businesses.
Output in the southern and eastern Mediterranean is forecast to grow by 4 per cent in 2023 and 4.2 per cent in 2024. While growth decelerated sharply in 2022 on higher inflation and tighter financing conditions, it is expected to recover in 2023 as agricultural output rebounds and much-needed structural reforms advance.
A more comprehensive Regional Economics Prospects report will be issued in May.
OFFICIAL USE
To learn more about EBRD classifications, visit http://www.ebrd.com/ic
______________________________________________________________

Testo Allegato:

REGIONAL
ECONOMIC
PROSPECTS
FEBRUARY
UPDATE

Regional Economic
Prospects
in
the EBRD Regions
Not out of the woods yet
February 2023
Update
Output in the EBRD regions is estimated to have grown by 3.2 per cent year
on
year in January
September
2022 (and around 2.4 per cent in the year as a whole), slower than in 2021 as the war on Ukraine took its
toll and the post
Covid recovery has mostly ru
n out of steam (in 2020, the region’s output contracted by
2.4 per cent).
��3 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;has been strong.
Ana
lysis of disinflation episodes since the late 1990s suggests that
disinflation is likely to
be
more
gradual
Output in
central Europe and the Baltic states
is expected to increase by 0.6 per cent in 2023.
In 2022,
he region
economies
proved more resilient than expected, but falling purchasing power, weaker
external demand from advanced Europe an
d elevated financing costs are expect
to weigh on growth.
Growth is
forecast
to pick up to 2.7 per cent in 2024, still below
medium
term
potential reflecting
continued high energy prices and short
term costs
associated with
the green transition.
Countrie
s in the
south
eastern European Union
have also been resilient to shocks, but
experienced
sharply
lower growth rates in the second half of 2022. Growth of 1.5 per cent is expected in 2023, picking up to
3.1 per cent in 2024.
hile economic growth in the
Western Balkans
moderated in 2022, household consumption
proved
resilien
. Growth
in 2023
is expected to slow to 2.2 per cent reflecting weak external demand
, persistently
high inflation and tighter financing conditions
. Growth is expected to pick up to 3.
4 per cent in 2024.
Output in
eastern Europe and the Caucasus
(excluding Ukraine)
exceeded expectations in 2022 driven by
high growth in Armenia and Georgia. Growth is, however, expected to slow to 2.7 per cent in 2023
before
picking up moderately in 2024, to
3.6 per cent
as the impact of extraordinary factors
related to rerouting
of trade around Russia and inflow of capital and skilled migrants
wanes. Real output in Ukraine is
expected to stabilise at around 70 per ce
nt of its 2021 level in 2023.
Output in
Central Asia
is expected to grow by 4.9 per cent in 2023. A slight upward revision relative to
September reflects the boost from high oil and gas prices in commodity exporters and increased inflows of
labour, capital
and remittances and increased intermediated trade. Output growth is expected to pick up
to 5.4 per cent in 202
, on planned infrastructure investments, high commodity prices and relocation of
Russian businesses.
GDP growth in
Turkiye
slowed down significa
ntly in 2022, and is expected to fall further, to 3 per cent in
2023 and 2024
as
the growing external financing requirements and political uncertainty associated with
elections in 2023 create significant economic vulnerabilities
These forecasts do not inc
orporate the
potential effects of the February 2023 earthquake and it is very early to be making any firm predictions
about the impact on overall economic activity in 2023.
A reasonable estimate would be a loss of
up to
per cent of GDP as the boost from
reconstruction efforts in the later months of the year is expected to
partially offset the negative impact from the damage to supply chains and infrastructure.
Output in the
southern and eastern Mediterranean
is expected to grow by 4 per cent in 2023 and 4.2 per
cent in 2024. While growth decelerated sharply in 2022 on higher inflation and
tighter financing
conditions
it
is expected to pick up
in 2023 as agricultural output rebounds and
much
needed
structural
reforms
advance
��4 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;Table 1. GDP growth in real terms
Sources: National authorities and EBRD. Notes:
Weights are based on the values of gross domestic
product in 2020 at market
exchange rates. Jan
Sep ‘22 estimates from national authorities and Refinitiv Eikon/Oxford Economics. 2023 down refers to the
‘no Russian gas’ scenario from the September 2022 Regional Economic Prospects
Jan-Sep’22
2022 est
2023 down
EBRD Regions
7.1
3.2
2.4
2.1
3.3
0.1
-0.9
0.4
Central Asia
5.1
4.3
4.3
4.9
5.4
0.0
0.1
-0.1
Kazakhstan
4.1
3.0
3.1
3.5
4.0
0.1
0.0
0.0
Kyrgyz Republic
3.7
7.2
7.0
7.0
7.2
0.0
0.0
0.0
Mongolia
1.6
3.7
3.7
7.0
7.5
0.2
0.0
0.0
Tajikistan
9.2
7.8
7.3
8.0
8.0
0.3
0.0
0.0
Turkmenistan
6.2
6.2
6.2
6.5
7.0
-0.8
0.5
-1.0
Uzbekistan
7.4
5.8
5.7
6.5
7.0
0.2
0.0
0.0
Central Europe and the Baltic states
6.2
5.2
4.0
0.6
2.7
0.3
-0.7
1.0
Croatia
13.1
7.1
6.5
1.5
2.3
0.0
-0.5
0.5
Czech Republic
3.6
3.2
2.5
0.2
2.2
0.0
-0.3
0.7
Estonia
8.0
0.7
0.3
0.2
2.5
-1.2
-0.8
0.7
Hungary
7.1
6.1
5.0
-0.2
2.5
0.0
-1.7
0.3
Latvia
4.1
2.4
2.0
-0.2
2.0
-0.5
-1.0
0.3
Lithuania
6.0
2.7
2.3
0.0
1.7
0.3
-1.5
0.5
Poland
6.8
6.6
4.8
1.0
3.0
0.8
-0.5
1.5
Slovak Republic
3.0
1.9
1.5
0.5
3.4
-0.5
-0.5
1.5
Slovenia
8.2
7.0
6.0
1.0
2.3
0.0
-0.8
0.2
Eastern Europe and the Caucasus
4.9
-17.4
-17.6
1.6
3.2
0.2
-4.6
1.1
Armenia
5.7
12.6
13.5
4.0
4.8
5.5
0.0
1.0
Azerbaijan
5.6
5.6
4.6
2.5
2.7
0.1
0.0
0.0
Georgia
10.4
10.2
9.9
5.0
5.3
1.9
0.0
1.0
Moldova
13.9
-4.1
-4.7
-1.3
3.5
-3.7
-1.3
6.7
Ukraine
3.4
-30.0
-30.0
1.0
3.0
0.0
-7.0
1.0
South Eastern EU
7.0
5.1
4.7
1.5
3.1
-0.3
-0.5
0.1
Bulgaria
7.6
3.7
3.0
1.0
2.6
0.0
-0.5
0.5
Greece
8.3
5.9
5.2
1.5
3.0
0.0
-0.7
-0.5
Romania
5.8
4.9
4.7
1.7
3.3
-0.7
-0.2
0.5
Southern and Eastern Mediterranean
6.1
3.3
3.3
4.0
4.2
0.4
-0.7
0.0
Egypt
7.1
4.4
4.4
4.6
5.0
0.5
-1.0
-0.1
Jordan
2.2
2.7
2.6
2.7
2.5
0.6
0.0
0.2
Lebanon
-10.0
-4.0
-4.0
2.0
3.0
-2.0
-2.0
-1.8
Morocco
7.9
1.3
1.3
3.3
3.2
0.2
0.0
0.3
Tunisia
4.3
2.6
2.7
2.5
2.7
1.0
-0.4
-0.2
Turkiye
11.4
6.1
4.5
3.0
3.0
0.0
-0.5
0.0
Western Balkans
7.6
3.5
3.0
2.2
3.4
-0.2
-0.8
1.5
Albania
8.5
4.3
3.7
2.5
3.3
0.7
-0.5
0.5
Bosnia and Herzegovina
7.5
4.6
4.0
2.0
3.0
1.0
-0.3
1.7
Kosovo
10.5
2.8
3.2
3.0
4.0
-0.8
-0.7
0.3
Montenegro
12.4
7.1
6.3
3.3
3.7
2.6
-0.7
0.3
North Macedonia
4.0
2.7
2.5
2.0
3.0
-0.2
-0.3
2.7
Serbia
7.4
2.8
2.3
2.0
3.5
-1.0
-1.3
1.7
Memo: Egypt (fiscal year to June)
3.3
4.4
6.6
4.7
5.0
0.0
0.0
0.1
EEC excl. Ukraine
7.7
6.2
5.6
2.7
3.6
0.7
-0.1
1.3
Belarus
2.3
-4.7
-4.7
-1.0
1.3
0.8
0.0
0.0
Russia
4.7
-1.7
-3.5
-3.0
1.0
1.5
0.0
0.5
Table 1. Real GDP growth, in per cent per annum
Actual
Forecast (Feb’23)
Revision since Sep’22

Output in t
he EBRD regions
is estimated to have
increased by
2.4
per cent
in
Output in the EBRD regions i
s estimated to have
grown by 3.2
per cent year
on
year in January
September 2022 and around 2.4 per cent in the
year as a whole. While this was slower than in
2021 as the war on Ukraine took its toll and the
post
Covid recovery has mostly run out of steam,
this outcome nonetheless exceed
ed expectations
in particular in c
entral Europe, the Caucasus and
Central Asia (see Chart 1)
In
entral
Europe, private savings accumulated
during the Covid
19 lockdowns have been actively
spent. This temporarily boosted consumption
despite falling real
wages
, while
result
ing
in a
sharp widening of current account deficits in
entral Europe.
Economies in Central Asia and the Caucasus
benefitted from intermediating trade to Russia as
well as inflows of capital and educated migrants
from Russia.
Chart 1.
Growth in 2022 in c
entral Europe and the
Caucasus surprised on the upside
Sources: National authorities via CEIC
, EBRD Regional
Economic Prospects September 2022
and authors’
calculations.
Commodity prices have eased
from their recent
peaks
Having
increased sharply in 2022,
the
oil price
has
recently
eased to its pre
war level
t around
US$ 85
per barrel as of end
January
2023, it
remains
well
below its historical peaks
in inflation
adjusted terms
(see Chart 2
). Ur
als oil continue
to trade at
di
scount relative to Brent as some
buyers discontinued purchases of oil from Russia.
Based on oil futures, markets expect prices to
decline slowly over the next 5 years
Chart
Oil prices eased to pre
war levels, but
are
expected to decline only slowly
Sources:
Bloomberg,
Refinitiv Eikon
and authors’
calculations.
Notes: Prices adjusted for US inflation.
Dashed line
denotes futures.
The price of gas increased sharply in 2022 as
supplies of pipeline gas from Russia to Europe fell
by more than 70 per cent
year
on
year in the
second half of the year. The reduction reflects the
cancellation of Nord Stream 2, closure of Nord
Stream 1 (running to Germany), suspension of
shipments through Belarus (to Poland) as well as
reduced transhipment through Ukraine (to
ngary and the Slovak Republic) and, more
recently, Turk Stream (a pipeline under the Black
Sea to the
Turkiye
Greece border).
Reduced consumption (reflecting
mild
weather in
Europe and higher prices) has helped to maintain
gas in storage in Europe above th
e corresponding
2021 levels. Additional liquefied natural
gas (LNG)
supplies and deliveries
from Norway and Algeria
have also reduced price pressures (total gas
imports in 2022 were 4 per cent lower than in
2021). As a result, gas prices in Europe, at arou
nd
US$ 63 per megawatt
hour as of end
January
2023, were back to their pre
war levels (see Chart
3). However, those levels are comparable to highs
last seen in the 1980s and exce
ed the US price by
a factor of six
��6 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;Markets expect high prices in Europe to persist
throughout the 2020s, consistent with previous
episodes of high prices in Europe lasting 7
years.
Chart 3
. Gas prices in Europe
declined to pre
war
levels, but
are
expected to remain high
Sources: Bloom
berg,
CEIC
and authors’ calculations.
Notes: Prices adjusted for US inflation. Dashed lines
denote futures.
Wheat prices also returned to below their pre
war
levels but are expected to edge up in
2023 on
high fertilis
er costs as Belaru
s and Russia were
lar
ge fertilis
er exporters (see Chart 4).
Chart
. Wheat prices norma
lis
ed
, but are
expected to edge up in 202
3 on high fertilis
er
costs
Sources: Bloomberg
, Refinitiv and authors’
calculations.
Notes:
Prices adjusted for US inflation.
Dashed line
denotes
futures.
Inflation
may have peaked
High
food and energy prices
contributed
to
inflationary pressures
throughout 2022
adding to
the pressures
from
the rebound in global demand
as Covid
19 restrictions were phased out.
Average
inflation in the EBRD regions peaked at 17.5 per
cent in October 2022 (the level last seen in 1998,
at the end of the transition recession).
As energy and food prices came down from their
peaks, a
verage inflation in the EBRD regions
also
fell to 1
6.5
per cent in
Dece
mber 2022 (see Chart
Energy and food
together
accounted for about
per cent of
price increases
, down from about
0 per cent in July.
Chart 5. Inflation
fell
to 16.5 per cent in the EBRD
regions in
December
2022
Sources: Bloomberg, national authorities via CEIC and
authors’ calculations.
Notes: Year
on
year changes. Headline inflation is a
simple average across 33 economies in the EBRD
regions. The decomposition is based on an unbalanced
panel ranging from 5 econ
omies in 1997 to 11
economies from 2001. The decomposition is scaled to
overall inflation in the EBRD regions.
nflation
was in double
digits
in 80 per cent
of
economies in the EBRD regions, reaching
over
0 per cent in Lebanon and over
0 per cent in
rkiye
(see Chart
).

Cha
rt
Inflation
was
in double digits in
80 per
cent
of economies in the EBRD regions
Sources: National authorities via CEIC and authors’
calculations.
Notes: Year
on
year changes.
Select economies shown.
In 26
economies in the EBRD regions inflation
measured year
on
year
was down
(or unchanged)
in
December
relative to
November
(see Chart 7).
Egypt
Hungary
and six
other economies
it was
still
rising
, in some cases
reflecting inflationary
pressures from
currency depre
iations
(see Chart
Chart
In 26
economies in the EBRD regions
inflation was down in
December
relative to
November
Sources:
Bloomberg, n
ational authorities via CEIC and
authors’ calculations.
Notes: Number of economies where year
on
year
inflation in a given month is
strictly
higher than year
on
year inflation in the previous month.
Chart 8. In some economies inflation continued to
increase
Sources: National authorities via CEIC and authors’
calculations.
Notes: Changes in year
on
year inflation. Economies
with changes of at least 0.5 percentage points shown.
In most economies in the EBRD regions,
age
growth
lag
ged
behind inflation
(see Chart
).
Real
wage growth
has been strong
, however, in
Central
Asia and the Caucasus, boosted by intermediated
trade and the associated logistics industry a
s well
capital inflows from Russia.
Chart
eal wage growth
has
remain
ed
strong
in
Central Asia
Sources:
Bloomberg
and authors’ calculations.
Notes:
October or November 2022. September 2022
for Belarus, Estonia, Greece, Latvia, Lithuania, the
Slovak Republic, Slovenia and Uzbekistan.

Disinflation may take longer than markets expect
Past episodes of high inflation suggest that
disinflation
may t
ake longer to achieve than
currently expected
After
inflation in central and
south
eas
tern EU
peaked at around 11 per cent in
early 2000, it was slow to come down against the
background of robust economic growth in the
region (see Chart 10).
After peaking
at around 9
per cent in June 2008, i
t declined by 7
percentage points
within a year. During that time,
output contracted by 7 per cent on average
(based on the sample of 11 economies shown in
Chart 10)
Disinflations tend to be faster if
economic conditio
ns are weaker and
unemployment is high and rising
as in these
circumstances
inflation expectations feed into
rising
wage
to a lesser extent
Chart 10. Past experience points to slow
disinflation
Sources:
Bloomberg and authors’ calculations.
Notes:
Simple average across 11 economies in central
and south
eastern EU. Dashed line denotes forecast
based on 6 economies.
Markets currently expect disinflation faster than
that following the 2008 peak, with inflation
expected
to come down by about 10 percent
age
points in a year
, even though
food or energy
prices
are not expected to fall further in a
significant way
Likewise,
IMF forecasts from
October 2022 expect inflation in the EBRD
regions to decline to around 7 per cent by end
This section is based on Chupilkin et al. (2023).
2023 (still averaging to in
flation of almost 10 per
cent for 2023 as a whole; see Chart 11).
Chart
11
Inflation
is
expected to decline
in 2023
Sources:
Bloomberg,
IMF
WEO October 2022 forecasts
and authors’ calculations.
Notes: End
of
period inflation for 2023. Select
economies
shown.
Changing patterns of
trade
in Central Asia and the
Caucasus
Exports from the European Union, the United
Kingdom and
United States to Russia declined
rapidly since Russia’s invasion of Ukraine and the
subsequent introduction of sanctions against
Russia. In May
July 2022, exports from the
European Union, the United Kingdom and United
States
to Russia were all more than 50 per cent
lower than their avera
ge in the same period
between 2017 and 2019.
In part, this represents direct application of
sanctions (which limit exports of technology as
well as transactions with specific counterparties).
In part, it reflects individual decisions of many
companies to
stop selling goods and services to
Russia as well as Belarus (see Sonnenfeld et al.,
2022, who show such decisions were associated
with improved stock market performance
, and
Evenett and Pisani, 2023
).
Increased complexity of clearing payments from
Russia
(including those required to settle import
��9 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;export transactions) may also have played a role
(see Demir and Javorcik, 2018, on the role of
trade finance in supporting cross
border trade).
At the same time, exports from the European
Union, the United Kingdo
m and United States to
Central Asia and the Caucasus increased
dramatically, hinting at the rise of ‘intermediated
trade’, whereby goods are being exported to
Central Asian economies and then sold onwards
to Russia.
Exports from the European Union, the Un
ited
Kingdom and United States to some economies in
Central Asia and the Caucasus increased by more
than 80 per cent over the same period. These
increases were particularly pronounced for the
Kyrgyz Republic and Armenia, both members of
the Eurasian Econom
ic Union providing for
customs
free trade with Russia (see Charts 1
and 1
).
Chart 1
EU and UK
to Russia exports
more than
halved
their
exports to Armenia and the Kyrgyz
Republic increased markedly
Sources: Chupilkin et al. (2023) based on data from
Comtrade.
Notes: As reported by exporters. Trade in nominal US
dollars is adjusted for US inflation.
month moving
average.
Monthly average taken across all months in
19.
Chart 1
. Exports to Russi
a from Armenia and the
Kyrgyz Republic increased substantially
Sources: Chupilkin et al. (2023) based on data from
Comtrade.
Notes: As reported by exporters. Trade in nominal US
dollars is adjusted for US inflation.
month moving
average.
Monthly avera
ge taken across all months in
19.
While this additional (intermediated) trade
represents a small fraction of the reduction in
Russia’s direct imports from the West, it amounts
to
4 to 6 per cent of GDP (annualis
ed) in Armenia
and the Kyrgyz Republic.
This trade has also
boosted the development of associated logistics
industry
and financial services
An additional analysis shows that
hese patterns
of intermediated trade
through neighbouring
economies
are stronger and more extensive than
those observed
in the earlier episodes of
economic sanctions, for instance,
after re
imposition of sanctions against Iran in 2018.
Exchange rate pressures
ost currencies in the EBRD regions depreciated
against the US
dollar
between February 2022 and
January 2022, reflecting
the
US dollar’s strength
against other major currencies
(see Chart 14
).
Notable exceptions are currencies in Central Asia
and the Caucasus, where
revenues from
intermediated trade combined with infl
ows of
��10 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;capital underpinned the appreciation of local
currencies.
Chart
. Most currencies in the EBRD regions
weakened against the US dollar
Central Asia and
the Caucasus are notable exceptions
Sources: National authorities via CEIC and authors’
calculations.
As
depreciation
of the Turkish Lira outpaced
inflation since 2015, Turkiye’s
exports
have been
growing fast, benefitting from lower costs
expressed in US dollars. In 2022,
Turkiye
s global
exports were 20 per cent higher than in 2017
(in U
S dollar terms, adjusted for US inflation); its
exports to
Russia and Belarus
almost doubled
over the same period as goods from Turkiye
fill
ed
the void left by other exporters. Its exports to
Central Asia and the Caucasus also increased by
20 to 80 per cen
t relative to pre
Covid levels
. At
the same time, imports have also grown rapidly
and the
trade deficit
has
widened substantially.
Fiscal vulnerabilities increased
As of
end
January
, the median yield on 5
year government bonds in the EBRD regions
increased by
3.8
percentage points relative to
February
. This reflects
an increase in
yields
on German and
US bonds
by 1.
percentage
points), as well as an increase in the spread
between the EBRD regions and
Germany/ the
United States on reassessment of
emerging
market economy
risks
including geopolitical risks
(around
percentage points). Yields
re
especially high
in Tajikistan and Tunisia as well as
Belarus, Russia and Ukraine
(see Chart 15
).
Chart
The m
edian yield
in the EBRD regions
increased by
3.8
percentage points
since
February
2022
Sources:
Bloomberg
and authors’ calculations.
Notes:
Yields on 5
year government bonds in US
dollars
or closest benchmark available
, 24 Jan 2023
and 23 Feb 2022.
Reflecting high borrowing costs, interest
payments on public debt as a share of GDP are
also high and rising in
a number of economies in
the southern and eastern Mediterranean and
Ukraine
(see Chart 1
).
In Egypt, interest
payments are forecast to exceed
8 per cent of
GDP in 2023, which would constitute 43 per cent
of total government revenues.
Chart 1
. Interest payments are especially high in
the southern and eastern Mediterranean
Sources: IMF WEO October 2022, IMF Staff Reports,
Oxford Economics and
authors’ calculations.
Notes: Public debt for Lebanon is based on 2020
numbers, for Ukraine forecast of Oxford Economics is
used.
��11 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;Many economies in the EBRD regions have turned
to various support measures to mitigate the
impact of high energy prices on hou
seholds and
firms.
Government energy subsidies in central and
south
eastern EU economies
, for instance,
are
estimated at around 3.6 per cent of GDP on
average.
In some cases, such as Bulgaria, Greece,
Lithuania as well as Germany, Italy or the
Netherlands,
these are estimated to have
exceeded 5 per cent of GDP (see Chart 17).
As
high subsidies
helped ‘socialise’ the
immediate
impact of the energy
shock
, consumers and
producers are yet to factor in higher energy prices
fully into their spending decisions
hart 17.
upport measures
have shielded
consumers and producers from the full impact of
the
energy shock, at a high
cost
to
governments
Sources: Bruegel, Fitch Ratings.
Notes: Data as of 29 November 2022.
Twin deficits
Around
80 per cent of economies in EBRD regions
run both fiscal and external (‘twin’) deficits on
account of high energy prices (see Chart 1
). Both
general government deficits and current account
deficits exceed 5 per cent of GDP in
Jordan, the
Kyrgyz Republic,
Moldova,
Romania,
Tunisia
and
Turkiye
Chart 1
. The majority of economies in the EBRD
regions have
twin
deficits
Sources: IMF
WEO October 2022
and authors’
calculations.
Weak exchange rates can make domestic
producers more competitive and boost
exports
(as
the recent experience of Turkiye illustrates).
owever,
depreciations
can also raise debt
servicing burdens
in cases where debt is high and
much of it is denominated in foreign currency
Foreign currency debt accounts for high shares of
GDP in
Hungary, Mongolia and
Turkiye
all of
which
have recently
experienced significant
currency depreciations (see Chart 19).
Chart 1
Exchange rate depreciations
can
significantly
raise debt servicing burdens
Sources:
Bloomberg
, CEIC, IMF, World Bank,
national
authorities
and authors’ calculations.
Notes: Euro used as reference currency for Albania,
Bosnia and Herzegovina, Bulgaria, Hungary, Moldova,
��12 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;North Macedonia, Poland, Romania
and Serbia; US
dollar used for all other economies.
Foreign currency
de
bt
is calculated based on
latest available
estimates
of external public debt, household and corporate loans
in foreign currency
Output in the EBRD r
egions is expected to grow by
2.
1 per cent in 2023
Output in the EBRD regions is expected to grow by
2.1 per cent in 2023 as high gas prices and
persistent inflation weigh on
the
economic
outlook. The current forecast represents a
downward revision
of 0.9 percentage points
compared with the baseline scenar
io published in
September 2022
(see Chart 20)
Growth forecasts
have been adjusted down in more than half of
economies in the region, with virtually no upward
revisions
(see Table 1)
At the same time, the
projection is 0.4 percentage points higher
than in
the downside scenario
published in September
, which assumed no Russian gas delivered
through pipelines
Chart
20
Growth forecasts have been revised
down relative to the September 2022 baseline
scenario
Sources: National authorities via CEIC
Refinitiv Eikon
and EBRD forecasts.
Notes: EBRD average based on the values of gross
domestic product in 2020 in current US
dollars
from
the IMF.
Growth is expected to pick up to 3.3 per cent in
2024, broadly in line with estimates of medium
term potential
growth (see Chart 21).
Chart 21.
Growth is expected to pick up to 3.3 per
cent in 2024
Sources: National authorities via CEIC and EBRD
forecasts.
Notes: EBRD average based on the values of gross
domestic product in 2020 in current US dollars from
the
IMF.
Regional
outlooks
Output in central
Europe and the Baltic states
is
expected to increase by 0.6 per cent in 2023. In
2022, the region’s economies proved more
resilient than expected
Exchange rates
strengthened again somewhat and bond yields
stopped rising in October
(see Chart 22).
At
the same time,
falling purchasing power, weaker
external demand from advanced Europe and
elevated financing costs are expected to weigh on
growth
his year
. Growth is forecast to pick up to
2.7 per cent in 2024, still below medium
term
potential
reflecting continued high energy prices
and short
term costs associated with the green
transition.

Chart 22. Bond yields in central Europe stopped
rising in
October
Sources: Bloomberg and authors’ calculations.
Notes: Bond yields is an average of 5
year government
bond yields in local currency based on 8 economies
(Croatia, Czech Republic, Hungary, Latvia, Lithuania,
Poland, Slovak Republic and Slovenia).
Countries in the
south
eastern European Union
have also been resilient to shocks, but
experienced sharply lower growth rates in the
second half of 2022. Growth of 1.5 per cent is
expected in 2023, picking up to 3.1 per cent in
Similarly, while econom
ic growth in the
Western
Balkans
moderated in 2022, household
consumption proved resilient. Growth in 2023 is
expected to slow to 2.2 per cent reflecting weak
external demand
, persistently high inflation and
tighter financing conditions
. Growth is expected
to
pick up to 3.4 per cent in 2024.
Output in
eastern Europe and the Caucasus
(excluding Ukraine) exceeded expectations in
2022 driven by high growth in Armenia and
Georgia. Growth is, however, expected to slow to
2.7 per cent in 2023 before picking up
oderately in 2024, to 3.6 per cent, as the
impact of extraordinary factors related to
rerouting of trade around Russia and inflow of
capital and skilled migrants wanes. Real output in
Ukraine is expected to stabilise at around 70 per
cent of its 2021 level
in 2023.
Output in
Central Asia
is expected to grow by 4.9
per cent in 2023. A slight upward revision relative
to September reflects the boost from high oil and
gas prices in commodity exporters and increased
inflows of labour, capital and remittances and
increased intermediated trade. Output growth is
expected to pick up to 5.4 per cent in 2024, on
planned infrastructure investments, high
commodity prices and relocation of Russian
businesses.
GDP growth in
Turkiye
slowed down significantly in
2022, and is
expected to fall further, to 3 per cent
in 2023 and 2024 as the growing external
financing requirements and political uncertainty
associated with elections in 2023 create
significant economic vulnerabilities
These
forecasts do not incorporate the potenti
al effects
of the February 2023 earthquake and it is very
early to be making
any firm predictions about the
impact on ove
rall economic activity in 2023.
A
reasonable estimate would be a loss of
up to
per cent of GDP as the boost from reconstruction
effor
ts in the later months of the year is expected
to partially offset the negative impact from the
damage to supply chains and infrastructure (see
Box 1
Output in the
southern and eastern
Mediterranean
is expected to grow by 4 per cent
in 2023 and 4.2 per cent in 2024. While growth
decelerated sharply in 2022 on higher inflation
and tighter financing conditions, it is expected to
pick up in 2023 as agricultural output rebounds
and much
needed structural
reforms advance.
Russia
’s economy contracted less than initially
expected in 2022, reflecting in part high energy
prices which mitigated some of the sanctions
impact. However, the economy is likely to contract
by 3 per cent in 2023 due to declining oil p
rices,
continued impact of the sanctions and fiscal
pressures related to the war on Ukraine. The
economy of
Belarus
is more dependent than
before on the Russian economy. GDP decreased
by an estimated 4.7 per cent in 2022 and is
expected to fall by 1 per ce
nt in 2023. A moderate
recovery of 1.3 per cent growth is forecast in

Box 1. Likely impact of the
February 2023
earthquake on Turkiye’s GDP
On 6 February 2023, a series of violent
earthquakes struck southern and central
Turk
iye
and northern and wes
tern
Syria, resulting in
widespread damage and fatalities in the region.
This box discusses the economic impact of the
earthquake drawing on the experience of the
1999 earthquake in Turkiye. That
earthquake
resulted in a loss of GDP of around 0.5 to 1 per
cent in the year it occurred
, with
reconstruction
activities
boosting growth in the following year by
around
1.5 per cent. As
the 2023
earthquake
took place early in the year, the
boost to output
from
reconstruction
activities may largely offset
the negative impact
of the disruption
economic
activity
Overall
��15 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;Overall
the
net the impac
t on grow
th is likely to
be less than 1 percentage point
in 2023
, although
these estimates are subject to major uncertainty
as recovery efforts continued at the time of
writing. It should also be noted that the impact on
GDP
value added generated in a gi
ven year
understates the total cost of the disaster, which
would also include damage to physical assets.
The inflationary impact
of the earthquake
is likely
to be limited, and largely felt through prices
of
food (given the agricultural importance of the
ffected areas)
and
construction materials used
in
reconstruction.
Reconstruction efforts are
likely
to drive up imports,
further widening
the current
account deficit,
while
any
reduction in
exports is
likely to be
short
lived
Aid inflows can support the
alance of payments
and hence the level of
international
reserves and the lira.
References
Chupilkin, M., B. Javorcik and A. Plekhanov
(2023).
“The Eurasian roundabout: Sanctions and
trade flows into Russia through the Caucasus and
Central Asia”
, EBRD
Working Paper, forthcoming.
Demir, Banu, and Beata Javorcik, 2018, “Don’t
throw in the towel, throw in trade credit!”
Journal
of International Economics
, Vol. 111, pp. 177
Evenett, Simon and
Niccolo
Pisani
, 2023, “
Less
than Nine Percent of Western Fir
ms Have
Divested from Russia
”, SSRN Working Paper.
Isakova, A., Zs. Koczan and A. Plekhanov (2016).
‘How much do tariffs matter? Evidence from the
customs union of Belarus, Kazakhstan and
Russia’,
Journal of Economic Policy Reform
, Vol.
19, pp. 166
184.
onnenfeld, Jeffrey, Steven Tian, Steven
Zaslavsky, Yash Bhansali and Ryan Vakil, 2022,
“It Pays For Companies To Leave Russia,”
Working
Paper SSRN 4112885.

Regional updates
Central Asia
Central Asia
, on average,
has seen a rather
modest impact from Russia’s war on Ukraine.
Kazakhstan
and
Turkmenistan
are enjoying
windfall oil and gas revenues on the back of
elevated prices, while the
Kyrgyz Republic,
Tajikistan and Uzbekistan
have seen significant
increases in in
flows of labour, capital and
remittances. With many Western companies
exiting the Russian market and Russian ports
being sanctioned, Central Asian economies are
also seeing significant gains in trade with Russia
and China, both by exporting own products (f
or
instance, textiles and consumer electronics) and
by providing transportation and re
exporting
services.
Mongolia
was off to a rather slow start in
2022,
but
China’s progressive reopening in the
second half of 2022 has led to a rapid
acceleration of the
country’s coal exports and
overall growth. Strong growth is likely to continue
across the region in the short term, but all Central
Asian economies face the challenges of inflation
and high debt
service costs.
Central Europe and the Baltic states
In 2022,
the EU economies of central Europe and
the Baltic states proved more resilient than
anticipated at the onset of the Russia’s war on
Ukraine. At end
2022, economic activity remained
stable, with employment rates high, especially in
countries
receiving a lar
ge number of refugees
from Ukraine
, such as
Poland
. In 2023, however,
a technical recession
is anticipated
over the
winter, driven by falling purchasing power
(especially in
the Baltic states
, which had the
highest inflation rates in the EU in 2022),
weake
ning demand from Western Europe and
elevated financing costs. Companies are expected
to further reduce their inventories built up in
22, with destocking contributing to a GDP
growth deceleration throughout the EU region.
Terms
of
trade deterioration,
driven by high prices
of energy imports in 2022, eas
ed
at the turn of
23, and substantially elevated inflation
rates
are anticipated to
pass t
heir peak in most
countries
the first quarter of
2023,
reflecting
base effect of high inflation last yea
r. While risks
related to a severe winter have almost passed,
markets expect
commodity prices
to
remain high
relative to the pre
Covid
19 period
The final year
for EU funds absorption from the previous budget
and fresh inflows of the Recovery and Resilient
Funds (RRF) money will boost public sector
investment, especially in green infrastructure and
digital economy projects.
Eastern Europe and the
Caucasus
The regi
on of e
astern Europe and the Caucasus is
facing enormous uncertainty in the short term
because of the ongoing war on Ukraine. In 2023,
under the assumption that combat activities in
Ukraine
will remain limited to the current territory,
whi
ch pre
war generated less than 20 per cent of
GDP, it is likely that real output will stabilise at
around 70 per cent of the 2021 level. In
Moldova
lower real incomes and continued energy
disruptions will likely lead to a second year of
output decline, th
ough milder compared with
2022. The extraordinary growth factors present in
the
Caucasus
in 2022 are likely to dissipate in
2023, bringing down the growth rates in these
countries close to their medium
term potential.
Inflation will continue to decelerate
but stay at
elevated levels in the whole region.
mproved
global prospects in 2024 will have a positive
impact on the economic recovery in
Moldova
and
should bolster economic activity in
the
Caucasus
Ukraine’s economy, however, will continue to be
heavily
affected by wartime considerations.
Unless there is a significant strategic change on
the ground, growth in
Ukraine
’s GDP in 2024 is
likely to be sluggish, but positive at least. Inflation
throughout the region may also remain above
target rates, especial
ly in
Ukraine
and
Moldova
where the normalisation path is likely to be longer.
The whole region remains highly vulnerable not
only to prolonged war in
Ukraine
but also to the
tensions between
Armenia
and
Azerbaijan
, and
risks to growth are therefore skewed
to the
downside.
South Eastern EU
Countries in south
eastern European Union have
been resilient to shocks, but faced sharply lower
growth rates in the second half of 2022, along
with a resurgence in inflation
(as elsewhere in the
EU)
. Generous energy subs
idies and other
government
measures are
helping to support
household consumption, and public investment is
being boosted by Recovery and Resilience funds,
notably in
Greece
. Positive but low growth is
expected in all three countries in this region in
picking up in 2024.

Southern and e
astern Mediterranean
In the southern and e
astern Mediterranean
region, growth decelerated sharply in 2022, as
the war on Ukraine negatively affected all
countries through higher imported inflation and
increasing fiscal
and external vulnerabilities
, as
ighter global monetary conditions exert
ed
pressure on external accounts. Global supply
chain disruptions and the slowdown in Europe
further held back growth in some countries. In
2023, a pick
up in average regional growth is
expected as countries adapt to the impact of the
war and agriculture re
bound
. The
implementation of the much
needed reforms
could boost private sector
investment
and growth,
but some downside risks exist as well, including
the continued global volatility and its impact on
inflation and the tourism sector.
Recovery is
expecte
d to gather pace
in 2024
, with average
growth
above 4 per cent, as reforms advance in
all countries.
The
Egyptian
economy recovered strongly from
the pandemic in fiscal year (FY) 2021/22. The
growth rate doubled to 6.6 per cent, driven by the
manufacturing
sector, as well as a rebound in the
Suez Canal and tourism revenues. However,
growth decelerated to 4.4 per cent in the first
quarter of FY 2022/23, down from 9.8 per cent in
the corresponding period of the previous year.
This slowdown resulted from the i
mpact of the war
on Ukraine
on
commodity prices (Egypt is a major
food importer, mostly from Russia and Ukraine),
coupled
with
lower investor sentiment, higher
borrowing costs and greater pressure on external
accounts.
The pound depreciated by close to
per
cent
against the US dollar
since early March
and i
nflation accelerated to a five
year
high
of 21.3 per cent year
on
year in December 2022.
Growth is expected to slow down to 4.3 per cent
in FY 2022/23, amidst reduced government
spending (especiall
y investment) and lower
domestic demand. However, the implementation
of structural reforms, supported by the IMF
programme, and the shift to a durably flexible
exchange rate regime are expected to relieve the
pressure on external financing and accelerate
eforms. As a result, growth is expected to
improve over the medium term, as it becomes
increasingly led by the private sector.
The
Tunisian
economy was hit hard by the
pandemic and the recovery has been modest.
After growing by 4.3 per cent in 2021, GDP gr
owth
slowed down to 2.6 per cent in the first 3 quarters
of 2022, as construction and mining contracted
and manufacturing slowed down, despite the
recovery in tourism, transport and agriculture. The
outlook for 2023 is subdued, as growth is
expected to dec
elerate further to 2.5 per cent.
The main risks to the outlook arise from further
delays in implementing reforms, deteriorations in
the political situation,
elevated
food and energy
prices (Tunisia is dependent on importing both),
and
weak demand from
Euro
Tunisia’s main
economic partner. A final agreement on the IMF
supported programme could provide much
needed financing, technical assistance and boost
credibility for tackling much
needed reforms.
rkiye
In Tu
rkiye, growth slowed down significantly in
2022, and is expected to fall further in 2023 and
2024. Inflation has been coming down from its
peak in October 2022, in part as a result of base
effects. However, a series of fiscal and credit
stimulus measures, along with a significant
minimum wage hike
for 2023, suggest that
growth has taken priority over macroeconomic
stability ahead of the presidential elections
scheduled for May 2023. While the government
has built up
, to
some degree
external buffers in
recent months, the growing external financing
equirements, and political uncertainty associated
with elections in 2023, create significant
vulnerabilities.
Western Balkans
In the Western Balkans, economic growth
moderated in 2022, but household consumption
showed resilience to fast
increasing inflation
rates, helped by steady increase in remittances,
credit growth, fiscal support measures and, in
some cases,
minimum wage hik
es and
public
sector
wage increases. Export growth has slowed
down after a strong perfo
rmance in the first half
of
2022, while the hospitality sector has
performed robustly. Countries in this region are
expected to continue growing in 2023, but at a
slower
pace as risks remain firmly tilted towards
the downside. While surging inflation rates have
started to decelerate, prices are set to remain
elevated in 2023. This will continue to erode
disposable incomes and slow down the
consumption impetus.
igher
dome
stic and global
interest rates put further pressure on domestic
demand as well as government finances. High
��18 &#x/MCI;&#xD 0 ;&#x/MCI;&#xD 0 ;energy prices are affecting both external and
fiscal accounts, as a large portion of the
energy
shock
continues to be absorbed by the public
sector.
Given the Western Balkans’ close ties to
the
urozone through trade, investment and
tourism, the anticipated slowdown of the
European market is set to dampen external
demand, particularly so for North Macedonia,
Serbia and Bosnia and Herzegovina, where
dustrial production plays a key role in growth
outcomes.

About this report
The Regional Economic
Prospects
are published
at least
twice a year
, along with occasional
updates
. The report is prepared by the Office of
the Chief Economist and the Departme
nt
for
Policy Strategy and Delivery
and contains a
summary of regional economic developments and
outlook, alongside the EBRD’s growth forecasts
for the economies where it invests.
The estimates
and projections are based on statistical
information available through
January
, 202
Box 1 incorporates information available until
February 10, 2023.
For more comprehensive coverage of economic
policies and structural changes, see the EB
RD’s
country strategies and updates, as well as the
Transition Report, which are all available on the
Bank’s website at http://www.ebrd.com.
Acknowledgements
The report was edited by Zsoka Koczan
koczanz@ebrd.com
) and Ale
xander Plekhanov
plekhana@ebrd.com
), under the general
guidance of Beata Javorcik, Chief Economist.
Box 1 was prepared by Roger Kelly and Zsoka
Koczan.
Colleagues in the Communications Department,
Policy Strategy
and Delivery
Department, the
Office of the Chief Economist and other
departments of the EBRD provided valuable
comments and suggestions. Maxim Chupilkin
and
Joseph Sassoon
provided research assistance.
Regional updates were edited by Peter Sanfey
sanfeyp@ebrd.com
). The writing teams covering
individual countries and regions were:
Albania, Bosnia and Herzegovina, Kosovo,
Montenegro, North Macedonia and Serbia:
Ana
Kresic
and Olja Belic
Armenia, Azerbaijan, Bela
rus, Georgia, Moldova
and Ukraine:
Dimitar Bogov,
Lia Alscher
and
Jongwoo Lim
EU member states (excluding Greece)
Mateusz
Szczurek and
Marcin Tomaszewski
Greece:
Peter Sanfey and Julia Brouillard
Egypt, Jordan, Lebanon, Morocco and Tunisia:
Rafik Selim
, Gretchen Biery, Soha Ismail
and
Reem Jodeh
Kazakhstan, the Kyrgyz Republic, Mongolia,
Tajikistan, Turkmenistan and Uzbekistan:
Eric
Livny and Kamilla Mamatova
Russia and
Turkiye
Roger Kelly and
Ali Sokmen

European Bank for Reconstruction
Development
One
Exchange
Square
London
EC2A
2JN
United
Kingdom
Tel:
+44
http://www.ebrd.com
Discover
more
ebrd.com
Find
on:
@EBRD
ebrdhq

EBRD
ebrd_official

ebrdtv