London: The European Bank for Reconstruction and Development said Wednesday that rising energy prices will put more price pressure on consumers in emerging Europe, central Asia, and north Africa. The bank also cut its growth forecast for the region through 2023.
Based on the bank’s most recent report, which came out in September, inflation in the EBRD’s region, which includes about 40 countries like Kazakhstan, Hungary, and Tunisia, reached an average of 16.5% in July. This was the highest level since 1998.
Due to less gas coming from Russia and some problems with deliveries from Ukraine, gas prices in Europe are now 2.5 times higher than they were in 2021. With producer prices going up faster than consumer prices, inflationary pressures are likely to get worse.
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Reuters quoted EBRD Chief Economist Beata Javorcik as saying, “Households still haven’t felt the full impact of rising energy costs because governments have been easing this burden.” “There will be more pain.”
Poland, Croatia, and Montenegro are some of the countries using energy subsidies like tax cuts and one-time payments to reduce the effect of Russia’s war in Ukraine on energy prices.
If gas supplies from Russia to Europe are completely cut off, the EBRD said, gas use would need to be “sharply cut back in the short term.” However, the bank’s base-case scenario was based on “significant disruptions.”
Food has been a big cause of inflation in the EBRD region, but Javorcik didn’t think this would lead to social unrest. The report shows that wheat prices are going back to where they were before Russia invaded Ukraine on February 24.
Growth is losing steam.
The bank predicted that the economies of the region will grow by 2.3% in 2022, which is 120 basis points more than what it had predicted in May. This was due to a stronger first half of the year, when households spent their savings from COVID-19 lockdowns despite real wages going down.
But because Russia’s gas supply was cut, the bank lowered its predictions for growth in 2023 from 4.7% to 3%.
It was thought that Ukraine’s GDP would shrink by 30% in 2022, while Russia’s economy would shrink by 10% instead of 5%.
“It’s no secret that energy sanctions haven’t worked that well,” said the chief economist.
The growth rate for Turkey, which gets the most money from the EBRD, has been raised from 2% to 2.5% for 2022. The growth rate for next year has been confirmed at 3.5%.
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The report said that between May 2021 and July 2022, 88% of central banks in the EBRD area raised interest rate
In response to inflationary pressures, Javorcik said, “Some room for hikes may be left.” However, a lot will depend on the uncertainty about energy supplies and the fact that the economy is already slowing down.
