The Russian economy has proven more resilient than expected and will continue to grow this year despite Western sanctions, while the war in Gaza weighs on countries in the region, according to the EBRD.
The European Bank for Reconstruction and Development (EBRD), which is holding its annual meeting in Yerevan, Armenia until Thursday, has published new growth forecasts for the regions it covers.
“It was unrealistic to expect that sanctions against Russia would lead to a deep economic and financial crisis, as many hoped,” Beata Javorcik, chief economist of the EBRD, commented to AFP.
Russia, which grew its economy by 3.6% last year, is expected to report a 2.5% increase in gross domestic product (GDP) this year, 1.5 percentage points higher than forecast in September , according to the institution’s latest projections. The Russian economy is now back above pre-war levels in Ukraine.
The country “refocused its economy on the war effort. This therefore leads to faster growth”, but does this “translate into an improvement in the well-being of its population? We can doubt it,” said M.me Javorcik.
According to the EBRD, the sanctions, even if they do not work perfectly, have limited imports of technology by Russia and add to the departure of multinationals as well as the exodus of a qualified workforce.
The impact of sanctions can already be seen through the record loss announced at the beginning of May by the energy giant Gazprom, noted Mme Javorcik. “Russian growth in the medium term will be lower than it would have been in the absence of sanctions,” she stressed.
For its part, Ukraine’s growth is expected to slow to 3% in 2024 compared to 5.3% in 2023, when the powerful agricultural sector “was supported by a record harvest”.
“Recent damage caused to the country’s electricity infrastructure by the war could contribute to slowing growth” this year, adds the organization.
However, “a new export corridor has been opened along the Black Sea coastline, removing some of the uncertainty […] to transport Ukraine’s vast deliveries of agricultural products and other metals and minerals,” the institution noted in a separate statement on Wednesday.
“Long-lasting” effects on tourism
The EBRD also covers southern and eastern Mediterranean countries. While the area’s economy is expected to grow this year, it will be less than expected, due to delays in major public investment projects in Egypt and because of the war in Gaza.
“The negative effects of the conflict on tourism in Jordan and Lebanon could prove lasting,” notes the institution.
Egypt, for its part, experienced a sharp drop in its revenues from Suez Canal fees, penalized by attacks by Yemeni Houthi rebels against ships to denounce the Israeli offensive in Gaza.
Founded in 1991 to help former Soviet bloc countries transition to a market economy, the EBRD has since expanded its scope to include countries in the Middle East, Central Asia and North Africa.
The institution indicated on Wednesday that it expects growth of 3% in all of its regions this year, accelerating thanks in particular to a drop in inflationary pressures, but a little less than previously anticipated.
In addition to the war in Gaza, this revision is explained by slower growth than expected in Central Europe and the Baltic States, and by a stabilization of trade via the countries of Central Asia (which since the war in Ukraine have become a sort of hub between Russia and the rest of the world).
Furthermore, despite the resumption of Nagorno-Karabakh by Azerbaijan in September, the cause of the massive arrival of refugees, Armenia sees its growth forecasts improve significantly to 6.2%.
“The (Armenian) government contributed to the integration of Karabakh refugees through public spending” which “stimulated the economy,” explained Ms. Javorcik.
The EBRD also notes that the month of May marks the 20e anniversary of the accession to the European Union of eight countries which it covers: the Baltic States and the States of Central Europe, an integration which has largely stimulated their per capita income.