DUSHANBE, April 27, 2015, Asia-Plus — In the Emerging Europe and Central Asia (ECA) region, lower oil prices and the economic slowdown in Russia are weighing heavily on many economies in Eurasia, while countries in the euro zone are benefiting from lower oil prices and a modest economic recovery, the World Bank said during the 2015 World Bank/IMF Spring Meetings.
Overall, economic growth in ECA will be almost non-existent in 2015, down from 1.8 per cent last year, the World Bank said.
This drop in growth largely comes from a major slowdown in Russia, which is caused by lower oil prices and a sharp economic downturn. Not counting Russia, the rest of the region is expected to grow by 2.8 per cent in 2015.
“Emerging Europe and Central Asia is expected to be the slowest growing region worldwide, with almost no growth forecast for 2015,” said Laura Tuck, Vice-President for the World Bank’s Emerging Europe and Central Asia region.
“These low growth prospects are driven in large part by those countries in the eastern part of the region that are highly dependent on oil exports, or on trade and remittances from oil exporting countries, which are experiencing a slowdown.
“This is compounded by ongoing geopolitical tensions due to the conflict in Ukraine. Poor households are hit either directly because they receive fewer remittances, or indirectly because of the macroeconomic consequences, including higher import prices, the disappearance of jobs in construction and other non-tradable sectors, and potentially lower government transfers because of induced fiscal pressures. As a result, poverty rates are expected to rise,” Tuck said.
GDP growth in Russia was just 0.6 per cent in 2014, compared to 3.5 per cent in 2012 and 1.3 per cent in 2013.
Looking ahead, the baseline scenario calls for a sharp recession in Russia, with a projected contraction of 3.8 per cent in 2015 and 0.3 per cent in 2016, according to the Word Bank. This forecast is based on expectations of an ongoing slump in oil prices (oil prices remaining in the US$50-60 range) and no immediate resolution of geopolitical tensions.
The flexibility introduced into the exchange rate regime (the ruble has depreciated nearly 40 per cent over the past year) has allowed the country to avoid a balance of payments crisis and has facilitated rebalancing of demand and production away from imports and toward domestic products and exports.
Countries in the South Caucasus, Eastern Europe, and Central Asia have been hard hit by the downturn in Russia and the oil price shock, directly and indirectly due to lower oil revenues, or a decline in remittances, and trade. Growth rates in 2015 are expected to be half those seen in 2014 in the South Caucasus and Central Asia, while Eastern Europe, which includes Ukraine, is expected to fall further into recession.
