recovery in EBRD region

The crisis in Russia and Ukraine is having a severe impact on the economies of the two countries and threatening to slow down the recovery in the wider EBRD region – or even bring it to a complete halt.

The EBRD’s latest economic report predicts growth in the transition region of just 1.4 percent in 2014, a sharp reduction from the rate of 2.7 per cent forecast in January. A modest upturn of 1.9 per cent in 2015 is possible, but only achievable if the crisis does not escalate.

EBRD Lead Economist for Russia, Peter Tabak, said: “Following fast recovery after 2009, Russia’s economic growth has slowed down during the past two years mostly due to structural factors. The resource-based growth model has run out of steam as commodity price increases have moderated.

“Fast resolution of the geopolitical conflict is also essential to regain investor confidence and focus on rekindling long-term growth. Low indebtedness, sustained budgetary and current account surplus as well as relatively developed financial markets can provide a good background for that.”

Under the EBRD’s most likely scenario, Ukraine would return to recession in 2014, with a contraction of 7 per cent and show no growth in 2015. The Russian economy would stagnate in 2014 and show only minimal growth next year.

However, there is an unusually high level of uncertainty surrounding the forecasts with major risks on the downside.

Under a less benign scenario including the imposition of financial sanctions in particular, Russia would slip into recession, the output contraction in Ukraine would deepen and average growth in the region would grind to a halt in 2014-15.

“At this point, the Russia-Ukraine crisis would start impacting the global economy,” the report says.

Read the full Regional Economic Prospects - May 2014 (944KB - PDF)