Economic Brief: Global Uncertainty and Potential Effects on Capital Inflows into CAREC

Mar 2020; CAREC Institute

The economic brief discussed the current heightened global uncertainty which goes along with the threat of less demand for CAREC export goods, and weaker GDP growth and tax revenues. Especially, oil and gas exporters might suffer from lower commodity prices and feel pressure on the exchange rates.

Initially, the global uncertainty was triggered by the Covid-19 outbreak. However, there are also much deeper, structural issues at work. One of them is trade wars, very likely only temporarily calmed by the US-China “phase one” deal. Another one is the increasing rivalry among major global oil producers.

An extended period of global uncertainty and of lower commodity prices can contribute to lowering the potential of the CAREC region to attract foreign investment needed to modernize the CAREC economies. CAREC members, therefore, need to step up efforts to attract foreign investment, especially outside the resource sector, they need to become part of the current technological revolution. Tighter regional integration, easier cross-border trade, and opening-up of Uzbekistan provide opportunities to make the region, as a whole, more interesting for foreign investors to utilize better economies of scale. More coordination and joint efforts, including industrialization and digitalization strategies, might benefit all.

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