DUSHANBE, September 18, 2014, Asia-Plus — The continuing crisis between Russia and Ukraine is weighing on the economies of the European Bank for Reconstruction and Development (EBRD) region, with only a modest recovery expected in 2015 after a sharp slowdown in growth this year.
New forecasts from the EBRD are revised down slightly compared with earlier predictions in May. EBRD’s economic that was released on September18 report says, “The volatile security situation in Ukraine makes the forecasts exceptionally uncertain.”
The Bank’s economists also issue a stark warning, “Permanently higher military spending in the transition region over the medium term, in response to the renewed geopolitical risks, could erode the peace dividend from the dissolution of the Soviet Union.”
The report sees growth in the whole region slowing to 1.3 per cent in 2014, from 2.3 per cent in 2013, with a modest pick up to just 1.7 per next year. This would mark the fourth consecutive year of regional growth below 3 per cent.
The Russian economy, under pressure both from the sanctions imposed from abroad as well as from the counter sanctions with which it has responded, is expected to stagnate in 2014 and contract slightly next year.
The sanctions were affecting business confidence in Russia, restricting the access of companies and banks to international capital markets and contributing to capital flight.
The escalation of military turbulence in eastern Ukraine was weighing heavily on Ukraine”s economy and its external financing needs.
The report said a deepening of the economic slowdown in Russia could pose a particular risk for those countries in eastern Europe and the Caucasus and Central Asia that rely heavily on Russian remittances.
The EBRD says remittances from Russia to countries in Central Asia and Eastern Europe and the Caucasus contracted in the first quarter of 2014 for the first time since 2009, primarily because of the Russian economic slowdown.
Uzbekistan and Moldova have reportedly been affected the most, while remittances to Armenia also slowed down significantly.
A fall in the volume of dollars being sent home had been partly offset by the rising purchasing power of remitted dollars following a weakening of the currencies in several recipient countries.
According to an index showing the overall economic exposures of a number of countries to Russia through various channels, Belarus and Tajikistan have the highest exposure to Russia, with significant exposure also seen in Armenia, Kyrgyzstan, Moldova and Ukraine.
