EBRD lowers forecasts on Uzbekistan's economic growth

Baku, Azerbaijan, Nov. 1

By Fikret Dolukhanov – Trend:

The European Bank for Reconstruction and Development (EBRD) has revised the forecast for Uzbekistan’s economic growth for 2018, according to the bank’s updated Regional Economic Prospects report.

The bank lowered its forecasts for Uzbekistan’s GDP growth from 5.1 percent to 5.0 percent for 2018, and from 5.3 percent to 4.5 percent for 2019.

The Bank noted that economic growth in Central Asia is expected to moderate in 2018 and 2019, reflecting a need for fiscal consolidation in the region and slower growth in the extractive sector.

In its latest Regional Economic Prospects report, the EBRD said regional growth would ease from 4.8 percent in 2017 to 4.6 percent in 2018 reflecting fiscal consolidation efforts and a sharp fall in gold output in the Kyrgyzstan.

Growth is expected to moderate further in 2019, to 4.2 percent, in the light of lower gains in the extractive sector and higher inflation limiting growth in real incomes and private consumption. However, the report said the Kyrgyzstan, Tajikistan and Uzbekistan continued to benefit from a recovery in remittances, though they remain below pre-crisis levels of 2013-14.

According to the EBRD’s report, economic growth in Uzbekistan slightly decelerated in 2018 following a decline to 5.3 percent growth in 2017 from the official rate of 7.8 percent in 2016. GDP growth was 5.2 percent year-on-year in the first three quarters of 2018. The slowdown was caused by a deterioration of the trade balance, with exports declining by 0.3 percent year-on-year in January-September 2018 and imports expanding by 33.3 percent year-on-year in the same period. In addition, growth of domestic consumption eased in response to price increases.

While Uzbekistan’s reform push lays the ground for solid growth in the years to come, the price and exchange rate liberalization and the reduction of subsidies has led to the adjustment of relative prices and double-digit inflation (15.7 percent year-on-year in August 2018) The liberalization of foreign trade led to higher exports of meat and some other goods, and price increases in response to the higher overall demand.

The high inflation and some exchange rate weakening prompted the central bank to tighten monetary policy in September 2018 and hike the policy rate hike from 14.0 percent, were it stood since June 2017, to 16.0 percent.

The current account was in deficit by around $1 billion in the first half of 2018, although the growing trade balance deficit was partially offset by remittances inflows. The exchange rate started appreciating at the beginning of 2018 until September 2018, when mild depreciation pressures set in.

Overall, the Uzbek soum strengthened by 2 percent in the first nine months of 2018. GDP growth may slow somewhat to 5.0 percent in 2018 as a whole and to 4.5 percent next year as a consequence of a deceleration in real income growth due to inflation and a further widening of the trade deficit.

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Follow the author on Twitter: @FDolukhanov

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