Emerging Europe and Central Asia Economies Return to Growth Amidst Pandemic-Related Setbacks

The modest growth in 2021 follows a contraction of 2 percent in 2020 due to COVID-related disruptions. The contraction was smaller than anticipated due to a stronger than forecast recovery in Turkey and resilience in Russia, the region’s largest economies. Rebounding industrial production, increased export demand, higher commodity prices and fiscal and monetary support contributed to this outcome. Hardest hit are economies that are heavily dependent on services and tourism, since social distancing measures and mobility restrictions led to sustained weaknesses.

The pandemic is expected to erase at least five years of per capita income gains in several of the region’s economies and raise the poverty headcount, largely due to job losses. Overall, despite the rebound in growth, the recovery in per capita gross domestic product (GDP) of the region is subdued and below pre-pandemic trends.

“The pandemic continues to cast a shadow on economic activity in Europe and Central Asia. However, as policymakers grapple with the short term impacts on health, education and the economy, they should seize the opportunity to address the long term challenges of boosting productivity, building a more vibrant private sector, improving institutions and moving towards low-carbon, greener and inclusive economies,” said Anna Bjerde, World Bank Vice President for the Europe and Central Asia region.”

Fundamental to achieving these long-term development goals is good governance. The pandemic has underscored the need for good governance given the important role governments around the world have played in mitigating the health, economic and social impacts of the virus. The range of measures have included restrictions on movement to control the spread of the infection to vaccination programs, relief packages to protect individuals and businesses from the economic fallout of the pandemic, and devising ways for virtual learning for millions of school children.

And the role of government in the region’s countries is likely to further increase in the coming years, driven largely by the need for expansion of health and long-term care for aging populations and public support for government interventions to tackle inequality and, in the face of COVID, improve health and education systems.

Economic situation in Central Asia

In sharp contrast to the rest of ECA, the number of COVID-19 cases remains relatively low in Central Asia. However, growing signs of acceleration in early 2021 forced the extension of various restrictions in some economies to help mitigate pressures on the health care system.

The economy is anticipated to be supported by a modest rise in commodity prices, relaxation of OPEC+ production cuts (Kazakhstan), and firming foreign direct investment as the subregion deepens its integration with the rest of the world and with each other.

In Uzbekistan, growth should continue to benefit from the implementation of an ambitious reform agenda, which progressed last year despite formidable headwinds from the pandemic.

However, the sub-regional rebound has been dampened by rising policy uncertainty in Central Asia, particularly in the Kyrgyz Republic, following political tensions and social unrest. Inflationary pressures have triggered more restrictive monetary policy in some countries, with the Kyrgyz Republic and Tajikistan raising their key policy rates.