Below-trend economic growth
GDP growth is set to slow further in 2016 to +4.1%, down from +5.0%
in 2015, due to weak exports and low commodity prices. On the
upside, resilient domestic demand growth especially private
consumption benefit from rising wages and a solid labor market.
Sector-wise, services and (public) construction perform relatively
In 2017, GDP growth should improve to some extent, yet remain below
its long-term average (c.5%). Better weather conditions should
support a gradual recovery of the agriculture sector. Output
value is set to grow at a gradual pace along a modest hike in
commodities prices. Yet the weak pace of new orders from overseas
markets may limit manufacturing momentum. On the expenditures side,
private consumption may prove resilient thanks to a lower inflation
and a stable job market. Private investment would be the main drag.
This reflects weak business confidence and limited exports
Macro-policies are constrained
Policymakers are to maintain a cautious stance. The Central Bank
has eased its monetary policy. The decision was based on
below-target inflation and elevated financial risk in the wake of
Brexit. Looking ahead, one should not expect an aggressive easing
strategy. The local currency’s sharp depreciation against the
dollar, along with low commodities prices and weak economic
prospects, mean that the Central Bank is likely not to lower
interest-rates at a rapid pace. This could change only in case of a
sharp economic slowdown or a strong decrease of inflation.
Fiscal maneuvering is constrained by a hefty public debt compared
to regional peers (above 50% of GDP) and low energy-related fiscal
revenues. In that context, the government would likely maintain its
gradual consolidation strategy. One can expect a frugal approach,
except for already planned infrastructure investment.
External vulnerabilities are elevated
External vulnerabilities are elevated. The current account has
shrunk rapidly even though it remains in surplus. External debt is
large (above 60% GDP) compared to regional peers and strong
currency depreciation has made payments more difficult.
There are few signs the situation will change in the short run.
Exports will be limited due to the modest growth of demand in
high-income markets and in China as well as low commodity
Pressures on the currency remain elevated. This reflects weak
investors’ confidence as political sentiment, external accounts,
and growth prospects have deteriorated.