Slowdown in Russia can be a drag on growth in Central Asia

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The FINANCIAL — 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, according to European Bank for Reconstruction and Development.

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.

A Russian downturn is likely to constrain growth in Central Asia though the region on average will see good growth driven by major natural resource projects, according to European Bank for Reconstruction and Development.

“Most of the countries in Central Asia showed strong economic growth in 2013; however, the slowdown in Russia is expected to be a drag on growth in Central Asia in 2014. The weakening of remittance flows, as well as exports (to a lesser degree), are expected to be a factor. Any further escalation of the Russia-Ukraine crisis poses significant downside risk to growth and would put downward pressure on currencies in the Central Asian region," Agris Preimanis, EBRD Lead Economist for Central Asia, said.

 

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.

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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, according to EBRD.

 

 

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