OREANDA-NEWS. In Q2 of 2014 the GDP growth in CIS countries continued to go down and reached 0.9% year-on-year. This conclusion is made in the new issue of The CIS Macromonitor published by the Research Department of Eurasian Development Bank (EDB).

The report states that the key factor beyond the economic slowdown in the CIS was the political crisis around Ukraine. The resulting drastic growth in uncertainty, the outflow of capital from the region, and exchange rate fluctuations affected consumption and investment. As a result, the economic indicators of all the three groups of CIS countries (oil and gas exporters, labour exporters, and countries with diversified exports) worsened.

The growth in Azerbaijan's GDP slowed down in the first six months and was 2.1% compared year-on-year. The recession in the oil and gas sector continued, although to a lesser extent: 3.9% in Q2 compared to 4.1% in Q1. Non-oil and gas sectors also grew at a slower pace of 7%, compared to 8.8% in Q1.

The macroeconomic situation in Armenia is characterised by a noticeable decline in economic activity caused by the worsened balance of payments. The growth in the country's GDP slowed down significantly in Q2, to 2.3% year-on-year. The worsened balance of payments is confirmed by a decrease in international reserves. At the same time, state finance improved and the state budget had a surplus of 5% of GDP. Inflation decreased to 1.8% in June, because of low economic activity and discontinued increases in the prices of gas imports.

At the same time, EDB researchers point out that economic activity improved in the summer and, despite the negative effect the slowdown in Russia and the weak growth in Europe had on the country's economy, the growth in Armenia's GDP can recover to 4.5% in 2014 (according to EDB's updated forecasts).

In Belarus economic activity continued to recover at a moderate fashion. This trend shaped in the beginning of the summer and was maintained in Q2. As a result, the country's GDP growth improved to 1.2% in the first six months (measured year-on-year), from 0.5% in Q1. EDB researchers believe that, after a decline in the first months of the year, the recovery of economic growth in the country to positive levels has stabilised.

The growth in Kazakhstan's GDP improved to 4% in Q2, compared year-on-year (from 3.8% in Q1). In the context of the international environment, which is unfavourable for Kazakhstan and affects external demand, the slight increase was due to the recovery of investment and rather strong consumption, despite devaluation. However, the balance of payments worsened: in May/June the country's gross international reserves decreased by USD 1.9 billion, compared to April 2014, to USD 26.5 billion. The state budget's surplus recorded in Q1 turned into a deficit and amounted to 0.9% of GDP after the first six months of the year.

The report states that until the end of 2014 Kazakhstan will be able to avoid a further slowdown in economic activity, however the growth in its GDP will be lower than in 2013. EDB forecasts it to be 4.2% in 2014 and 4.9% in 2015.

In Kyrgyzstan, the GDP growth slowed down to 4.1% over the first six months of 2014 (compared to 7.9% in Q1 2013) and the state budget deficit amounted to 1.1% of GDP. The annual inflation rate was 8.5% in June. EDB researchers expect Kyrgyztan's economy to grow at a moderate pace in the next three years. EDB forecasts that the growth in the country's GDP can be 4% in 2014, with a gradual increase to 4.7-5% in 2015-2016. However, the underdeveloped financial markets, the low institutional effectiveness, the weak coordination between the fiscal and monetary policies, and the high public debt make it difficult to implement a balanced macroeconomic policy.

Moldova's economy grew by 4.2% year-on-year in Q2. Economic activity in the country was supported by the continuing strong growth in agricultural production (+8%) and construction (+11.1%), while industrial growth (+2.5%) and retailing (+4.4%) slowed down. According to a consensus forecast, Moldova's economy will slow down to 2.6% in 2014.

In Q2, the growth in Russia's GDP was 0.8% year-on-year. The partial recovery of investment activity, which decreased by 0.4% in Q2 from 5.3% in Q1, was compensated by a slower growth in private consumption. The key contributors to the GDP growth were processing sectors, which grew by 2.8%. The report states that, "Investment activity, the decline in which was the main reason for the decrease in the country's GDP growth in 2013-2014, in the summer recovered to its annual rates, which are closer to zero. Before the end of the year, when a number of large transport infrastructure projects (including the contract for natural gas supplies to China) enter their practical stage, the growth in investment can become positive. The stabilized investment activity in the middle of the year was to a significant extent due to the recovered investment by large companies (especially oil and gas companies)." At the same time, large companies were targeted by sanctions because of the Ukrainian crisis. Therefore, foreign politics will determine the dynamic of investment in the Russian economy during the rest of the year and, to a significant extent, in 2015.

The other two critical components of GDP (household consumption and exports) are slightly more predictable. If salaries in the budget sector and lending continue to grow, this will help to maintain a positive growth in private consumption, although lower than in the beginning of the year. The growth in the physical volumes of exports is relatively stable. A positive factor in foreign trade in the second six months of the year will be, most probably, the resumed export of metals. On the whole, Russia's GDP is expected to grow by 0.5-1% this year and 0.5-2% in 2015.

In Tajikistan, the growth in GDP decreased to 6.7% over the first six months of 2014. In July-August economic activity in the country worsened further. All economic sectors had a slowdown because of weaker internal consumer demand, decreasing exports, and seasonal factors. According to a consensus forecast, in 2014 GDP will grow by 6.2%. In January-June the deficit in foreign trade increased by 42% year-on-year. The international environment for main exports (aluminium and cotton) gives reasons to believe that prices will decrease further and the external demand will weaken.

In Turkmenistan the economy continued to grow at a high pace in Q2 and made it possible to maintain GDP at a level of 10.3% year-on-year after the first six months of the year. The stable internal investment demand (8.2%) and consumer demand (a 10.7% increase in salaries) stimulated by state socioeconomic development and economic and infrastructure modernisation programs, as well as high foreign investment coupled with increased exports (+9.3%) are the main triggers of Turkmenistan's high growth.

In Uzbekistan, despite the unfavourable situation in international markets, the GDP growth increased to 8.7% in Q2 year-on-year and stood at 8.1% after the first six months of the year (7.5% in Q1). This noticeable increase was due to intensified investment activity (+10.8% in Q1), the growth in aggregate population incomes (+18.8%), and stable exports (+8%).

EDB experts point out that, in the existing growth model, investment and consumption are directly dependent on the fulfilment of a wide range of state socioeconomic development and economic and infrastructure modernisation programmes. Foreign investment, bank lending and relatively high volumes of money transfers also produce a good effect. High growth was demonstrated in the industrial sector (8.1%), construction (17.4%), agriculture (6.9%), trade (13.7%), and the services sector (14.2%).

Economic activity in Ukraine continued to decline in Q2. GDP decreased by 4.6% year-on-year. The decrease was 2.6% in extractive sectors, 8.4% in processing sectors, 9.1% in trade, and 16.9% in construction. Household consumption shrank by 2.3%, investment 18.5%, and exports 7.4%. In June the consumer price index grew by 11.6% year-on-year.

In Q3 economic activity in Ukraine continued to decline. "This process, which was initially formed by purely economic factors (the impossibility to further finance the external imbalance and budget deficit), accelerated and scaled up because of the military conflict in the country," states the report. "Before the end of the year household consumption is expected to decrease further. Agricultural growth can turn negative. On the whole, we forecast that GDP will decrease by 5 to 10% in 2014." If the political situation stabilises for a long time and the country receives sufficient financial support from outside, its economy can show high growth during the post-crisis recovery period - the depth of the current recession makes this possible. "If the situation remains as it is a new devastating wave of crisis is possible," conclude EDB experts.