EBRD: Inflation has peaked, but rising gas prices will pressure households

LONDON  – Inflation has peaked in emerging Europe, central Asia and north Africa, but rising gas prices in the coming winter will keep pressure on household finances, the European Bank for Reconstruction and Development (EBRD) said on Tuesday.

Consumer price rises in the EBRD’s region – covering some 40 economies and stretching from Kazakhstan to Hungary and Tunisia – peaked at 17.5 percent in October and have come down to 14.3 percent in March, the bank’s latest regional economic outlook report found. Some central banks even reduced policy rates as growth outlooks weakened, the EBRD noted, though pressure on many people’s finances was far from over.

“Particularly in the poorer countries, households are exhausted by the sequence of crisis,” said EBRD Chief Economist Beata Javorcik, referring to COVID-19 and the Ukraine war.

“Markets are pricing an uptick in energy prices this autumn and this winter,” she told Reuters.

European gas prices remain above the 2017-2021 average levels and exceed the U.S. price of gas by a factor of six.

More than a half of households in the EBRD region were “living from paycheck to paycheck,” according to preliminary data from a joint survey with the World Bank conducted October-April. If they lost their main source of income, 59 percent of those households would be able to cover basic expenses for less than a month.

On a government level, budgets in some nations are also under pressure due to debt accumulation and high interest rates. General deficits exceed 5 percent of GDP in Hungary, Romania, Ukraine and the southern and eastern Mediterranean.

The bank estimates growth in the EBRD regions to come in at 2.2 percent in 2023 and 3.4 percent in 2024, with Central Asia the fastest growing region at 5.2 percent.

“Relocation of Russian businesses and increased oil exports are providing a boost to growth in Kazakhstan,” the report added. Real wage growth in the region is an outlier in a world where salary increases are broadly below inflation rates.

Armenia, Azerbaijan and Georgia are also enjoying strong growth, Javorcik said, in contrast to Central Europe and the Baltic states.

“Remittances from Russia to countries in Central Asia and the Caucasus are still strong, and you also have the intermediated trade,” the lender’s chief economist said. “This trade replaces only a small fraction of the direct trade from Europe to Russia that disappeared (due to the war), but for some smaller countries is very substantial,” she said.

The EBRD confirmed its Ukraine growth estimates at 1 percent this year and 3 percent in 2024. Russia’s GDP was now expected to contract by 1.5 percent rather than the 3 percent previously forecast in February. That was due to higher oil price expectations and a redirection of oil trade to alternative destinations, the report said. A return to growth with a 1- percent expansion is expected for 2024.

Growth for Turkey, the single biggest recipient of EBRD funds, has been revised down to 2.5 percent from 3 percent for 2023, due to the economic effects of the February earthquake and expected tightening of credit conditions later in the year.

“If the opposition wins, they are promising a tightening, but if the current political option wins, they also may choose to tighten,” Javorcik said.

Turkey’s presidential elections will be decided in a May 28th runoff between incumbent Tayyip Erdogan and challenger Kemal Kilicdaroglu.