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Home News Russia crisis to hit ex-Soviet states harder than expected: EBRD

Russia crisis to hit ex-Soviet states harder than expected: EBRD

Published on 14/05/2015

The impact of Russia's economic crisis on its ex-Soviet neighbours will prove even more damaging than previously anticipated and continue into 2016, the European Bank for Reconstruction and Development (EBRD) said on Thursday.

Resulting from Western economic sanctions and falling oil prices, Russia’s economic dive “is having larger-than-expected negative spill-over effects on countries with which it has strong economic links,” the EBRD said.

Russia’s gross domestic product is due to contract by 4.5 percent this year and 1.8 percent in 2016, according to the EBRD’s latest economic forecast issued during its annual meeting held in the Georgian capital Tbilisi.

The bank’s grim forecast for Russia’s economy came despite hopes in Moscow that the ruble’s recent rebound would lessen the economic fallout and see a return to growth next year.

“It is hard to see a rebound going forward without the reversal of the ongoing de-coupling of Russia’s economy from the rest of the world and major structural reforms.”

– Remittances hit –

Under pressure from the recession in Russia and the ruble’s depreciation, national currencies fell significantly against the dollar and euro in most of the ex-Soviet republics.

“The most tangible impact of the Russian recession is in remittances home which are continuing to decline at an alarming rate,” the EBRD said.

It revised downwards growth forecasts for almost all countries that once made up part of the vanished Soviet empire.

The Russia crisis would even impact strongly on Georgia and Moldova, two ex-Soviet republics that have significantly reduced their economic dependence on Moscow and last year signed free trade agreements with the European Union, according to EBRD’s forecast.

This year, Georgia’s GDP would only expand by 2.3 percent as compared a previously expected 4.2 percent, while that Moldovan economy would contract by two percent, the London-based institution said.

The bank sees weaker growth of 1.5 percent growth in two oil-rich ex-Soviet nations, Azerbaijan and Kazakhstan, and a 1.5 percent shrinkage in landlocked Armenia and a 2.5 percent drop in Belarus.

In Central Asian countries, Tajikistan, Uzbekistan, and Kyrgyzstan, the return from Russia of hundreds of thousands of migrant workers “is proving to be a major economic and social challenge.”

In Ukraine, whose economy has been drained by the deadly separatist conflict in the country’s east, “GDP is now expected to shrink by 7.5 percent this year — a worsening outlook since January, when a five percent contraction was forecast,” the EBRD said.

It added that the country would return to 3 percent positive growth in 2016, if the massive programme of Western financial aid it is receiving remains on track.

The EBRD has frozen new investments in Russia as part of the Western economic sanctions imposed on Moscow over its alleged role in the unfolding Ukraine crisis.

Founded in 1991, the EBRD is an international financial institution owned by 64 countries, the European Union and the European Investment Bank.

It was initially focused on building market economies in the former communist states in Central and Eastern Europe and currently supports development in 30 countries in Central Europe and Central Asia as well as in five countries in the Middle East and North Africa.