Page 14 - bnemagazine bne_December 2021_20211203.pdf

14 I Companies & Markets bne December 2021
Other concerns include that wider inflationary concerns “may bring forward policy tightening in advanced economies, making debt burdens more expensive to service,” the report warned. “Travel restrictions and lingering fears of contagion continue to weigh on the outlook for the tourism sector. While bankruptcies have so far remained contained, further vulnerabilities may surface once policy support is reduced,” it added.
The EBRD’s chief economist Beata Javorcik described the ongoing recovery as “bittersweet”.
“This is a bittersweet recovery. The first half of 2021 brought
a robust rebound. But we are now seeing growing cause for concern. While high commodity prices benefit exporters, they weigh heavily on the trade balances of importers. The supply of affordable energy as we enter the winter period is becoming a serious worry, especially since governments’ headroom is limited,” said Javorcik, according to a press release from the EBRD.
“High prices of natural gas, oil and other commodities weigh on the trade balances of energy importers, in particular in the southern and eastern Mediterranean. They may also test the public’s resolve for greening and put pressure on governments to step in to mitigate the burden of higher energy expenses on low-income households,” the report elaborated.
“High energy prices, supply chain disruptions and in some cases currency depreciations have also pushed inflation up. In some economies, tight labour markets have added to inflationary pressures, with a strong rebound in vacancies in lower-medium skilled occupations such as drivers or craftsmen and strong wage growth.”
Rising inflation
The report cited rising inflation across the region, which includes Central and Eastern Europe, Central Asia and Southern and Eastern Mediterranean countries. Across this region, inflation exceeded its end-2019 levels by 3 pp in September. Several of the region’s central banks have already raised policy interest rates.
“In some EBRD economies tight labour markets added to inflationary pressures with a strong rebound in vacancies
in lower-medium skilled occupations. In other economies, considerable slack in labour markets remains,” the report said. On average, unemployment increased by 1.4 pp between February and August 2020.
The current high oil and gas prices have benefitted commodity exporters such as Azerbaijan, Kazakhstan and Russia. Yet many countries in the region are commodity importers, which have seen higher prices weigh on their trade balances.
The EBRD also identified fiscal vulnerabilities resulting from the large stimulus packages rolled out during the pandemic crisis. Public debt across the EBRD regions has increased by an average of 13 pp of GDP since end-2019, the report said, adding: “While borrowing costs remain below their pre-crisis levels in most economies, they have risen sharply in some countries."
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Moreover, a number of countries in the region, including much of Central, Eastern and Southeast Europe, are experiencing a new wave of the pandemic, hastened by low vaccination rates.
Fast and slow movers
Three tourism-dependent Southeast European economies
– Albania, Croatia and Montenegro – are heading for some of the fastest growth rates across the emerging Europe region this year, of 8.0%, 8.0% and 12.3% respectively, after experiencing some of the deepest contractions last year.
Robust growth is also anticipated in Turkey, whose economy has been one of the region’s strongest performers since the start of the crisis. It is expected to grow by 9% in 2021 and 3.5% in 2022. According to the EBRD, this is supported by
a post-lockdown rebound in domestic demand and strong exports benefiting from currency depreciation, though it warned of risks related to macroeconomic stability.
The bank did, however, point to the “stubbornly high” inflation in Turkey, where the decision to cut policy rates by 300 basis points since September “caught investors off-guard, as did the decision to sack three members of the monetary policy committee in October, including two deputy governors”. In general, a “lack of policy transparency, alongside the fragile
“Elevated energy prices and shortages of components, chips and raw materials have already affected countries with significant shares of manufacturing in GDP”
external position, makes Turkey vulnerable to changes in global investor sentiment,” the report said. Nonetheless, high frequency indicators suggest that activity remained robust in the third quarter of 2021.
At the other extreme, Belarus’ economy is predicted to expand by just 2.0% this year. GDP growth in Belarus reached 3.5% y/y in the first half of 2021, largely driven by growth
of exports and revived household consumption, despite the slowing growth of industrial production since May 2021.
This was due to the ending of base effects and possibly some early impact from international sanctions, the EBRD said. The development bank expects growth to decelerate in the second half of the year, to come in at just 2.0% for the full year.
“Economic sanctions and targeting of the export-focused potash and petroleum industries as well as sanctions-related supply shortages are expected to hit the economy later in 2021 and throughout 2022,” the report said. “At the same time, a strong commodities-based recovery in Russia, its main trading partner, could have a positive impact on Belarusian exports.”