A senior researcher of the Economic Modeling Development Center, Zhandos Ybrayev (PhD), presented his research work titled "Real exchange rate management and economic growth: export performance in Kazakhstan, 2009-2019” at the 2020 Eastern Economic Association Meetings in Boston, USA. The conference gathers together researchers from various fields of economics to present their recent advances in the field and exchange ideas on hard-pressed issues in contemporary research.
The research work presented at the conference concentrates on evaluating the effect of stable and competitive real exchange rate management on economic growth by analyzing the export performance of tradable goods sector in Kazakhstan over 2009-2019. The results show that maintaining an undervalued exchange rate supports high-tech exports sector, and a higly volatile exchange rate regime leads to unfavourable conditions for capital-intensive sectors.
Senior researchers of the Center participated in the Summer School of the Barcelona Graduate School of Economics (BGSE) during July 1-13. The researchers of the Center attended courses on Advanced Bayesian Methods, Bayesian Methods for DSGE, Modelling Non-stationary and Non-linear Time Series and Macroeconomic Time Series. The summer school program was specifically designed for experts/researchers and PhD students actively engaged in research in the related fields.
The courses briefly covered theoretical aspects of macroeconomics and taught applications of both standard and modern techniques of macroeconometrics on country level data. The research activity of the Center has been focused on building Bayesian DSGE and Dynamic Factor Models for forecasting and understanding macroeconomic indicators in Kazakhstan, for which the courses were a valuable source of knowledge. The researchers also exchanged ideas and opinion with other participants from the central banks and PhD programs from around the world on the ongoing research of the Center.
KYRGYZSTAN 2018 - 2021
|
GDP Growth (%) |
Potential Output Growth (%) |
Inflation (%) |
Unemployment (%) |
|
|
2018 |
4.2 | 7.3 | 1.9 | 7.5 |
|
2019 |
4.9 | 7.2 | 1.1 | 6.6 |
|
2020 |
3.9 | 6.9 | 0.9 | 5.8 |
|
2021 |
4.1 | 6.4 | 0.9 | 5.4 |
Table 1: Forecasts for Kyrgyzstan for 2018-2021
Figure 1: GDP Growth Accounting
According to the model’s forecast based on stochastic simulations, Kyrgyzstan’s GDP growth rate averaged at 4.2% in 2018. Gross fixed capital formation recovers from -0.8% in 2017 to 3.1% in 2018, sustained by rising domestic demand and decreasing user cost of capital. Household consumption continues to support economic growth as the result of rising real disposable income of the population.
In 2019, the GDP growth rate is expected to rise on average to 4.9%, in part reflecting a decrease in imports and an increase in investments due to strong domestic demand. An economic boost is foreseen to be temporary, and the annual growth rate of GDP is expected to slow to around 3.9% in the model’s central projection. That subdued pace reflects the impact of the slowdown of household consumption and a decline in investments. Besides, the import growth rate is expected to accelerate in this period, affecting negatively economic growth. Kyrgyzstan’s GDP growth begins to pick up next year and rises to 4.1% by the end of the forecast period.
In the model’s central projection, inflation was 1.9% in 2018, which is significantly below the medium-term target level of 5% - 7%, established by the National Bank of Kyrgyz Republic. Over the rest of the forecast period (2019 – 2021), the inflation rate is anticipated to remain considerably lower than the target level, largely reflecting a decline in prices for consumer goods and services.
The labor market remained tight in 2018, with the unemployment rate increased to 7.5% in the central projection. During the forecast period, the unemployment rate is expected to decrease from the level of 2018 to 5.4% in 2021, lying between the confidence interval of 0.4 – 10.9% with a probability of 95%. The growth rate of potential output reached on average of 7.3% in 2018, falling between the confidence interval of 6.1% - 7.8% with a probability of 95%. A gradual expansion of bands of the confidence interval to 4.1% - 8.0% is expected over the rest of the forecast period with an average forecast of 6.4% in 2021.
During the forecast period (2018–2021), the real exchange rate of the Kyrgyzstani Som is anticipated to depreciate, mainly due to inflation deceleration. Meanwhile, import growth will continue to affect the dynamics of economic growth adversely according to the model’s forecast.
|
GDP Growth (%) |
Potential Output Growth (%) |
Inflation (%) |
Unemployment (%) |
||
| 2018 |
3.9 |
0.3 | 5.2 | 0.6 | |
| 2019 |
2.1 |
1.4 | 4.6 | 0.8 | |
| 2020 |
1.3 |
2.3 | 1.7 | 0.8 | |
| 2021 |
1.2 |
2.7 | 1.3 | 0.9 | |
Table 2: Forecasts for Belarus for 2018-2021
Figure 2: GDP Growth Accounting
According to the model's forecast based on stochastic simulations, the economy of Belarus expanded by around 3.9% in 2018. The greatest contribution to GDP growth came from household consumption and gross fixed capital formation. The surge in household consumption through 2018 has partly reflected a decrease in long – term interest rates and a rise in real disposable incomes of the population, which grew by 11% compared to the previous year. The growth rate of investments accelerated in 2018 as the result of strong domestic demand and a drop in long - term interest rates.
In the model’s central projection, the GDP growth rate is expected to decline to 2.1% in 2019. The slowdown will be associated with weakening investments and the negative impact of net exports. The former reflects insignificant growth in domestic demand, while the latter is mainly the result of world trade contraction and domestic currency depreciation.
The model projects economic growth to dip to 1.3% and 1.2% in 2020 and 2021, respectively. Slow growth in these years reflects the drag on exports from the ongoing contraction of world trade and the weakening real exchange rate of the domestic currency. It will also be associated with the declining growth rate of real disposable income and continuing insignificant growth of investments.
In accordance with the model’s central projection, the inflation rate was 5.2% in 2018, slightly above the target of 5%. Nevertheless, the average price level is expected to decelerate significantly to 1.3% by 2021. The slowdown in inflation reflects the fall in oil prices considered under the scenario of 50 dollars per barrel.
During the forecast period, the unemployment rate is projected to remain relatively stable in the confidence interval of 0% - 1.9% with a probability of 95%; potential output is expected to grow in the central projection from 0.3% in 2018 to 2.7% in 2021; import growth is anticipated to slow down; output gap in the central projection is expected to decline from 4.5% in 2018 to 2.7% in 2021.