Edb Countries: Targeting Lower Inflation

The beginning of the last year proved to be challenging for the EBD Member States: with oil prices plummeting, both financial markets and exchange rates were highly volatile. Nevertheless, as of the year’s end, the countries of the region saw exchange rates stabilize, and, in a number of cases, their national currencies strengthened considerably. Similarly, inflation in the EBD countries reached its historic minimum of 5.8% at the end of 2016 as compared to 12.8% in late 2015. In 2017, the most probable scenario is continued inertial recovery in the EDB Member States and inflation decreasing as external conditions stabilize. We project a 0.9% growth of the EDB economies, with a further 1.5% acceleration in 2018-2019. And there remain opportunities for reducing inflation that we expect to decrease from 5.8% at the end of 2016 to 4.7% in 2017. Limited demand, stabilized exchange rates and capital flows and a conservative monetary policy in most countries of the region will support the continued downward inflation trend. In 2017, the budget sector will be the main macroeconomic challenge for the EDB countries, given the growth in debt of the countries of the region (Belarus and Kazakhstan), reduced State budget reserves (the Russian Federation) and sizeable budget gaps in 2016 (Armenia and Kyrgyzstan). The oil output reduction agreement reached with the OPEC countries in 2016 was an important event for the region’s major economies and generated a considerable recovery of petroleum prices. The 2017 focus will now be on the OPEC countries’ ability to adhere to their quotas/obligations; historically, the OPEC countries have had great difficulty in observing discipline. Still, the agreement itself mitigates somewhat the risks of a sudden and large-scale fall of oil prices similar to their decline in late 2015 and early 2016. In the field of economic policy, the EAEU countries are just beginning to fully utilize, in the last few years, the potential of regionalism; for now, the agreement between the Eurasian Economic Union Member States and Vietnam, that took effect in 2016, can be recognized as one such achievement. Nevertheless, with the EAEU becoming more active internationally, 2017 may become the year of the EAEU’s breakthrough towards a more diversified system of trade alliances; here the Eurasian Economic Union’s negotiations with such countries as South Korea, Singapore and Israel will be of key importance.