EDB researchers: The key event in 2014 for the CIS economies were drastic changes in the external environment
Almaty, 22 December 2014. In Q3 2014, the slowdown in GDP growth in the CIS countries almost stopped. Measured year-by-year, the region’s GDP increased by 0.73% in Q3 and 1.05% on Q1 and Q2 respectively. This conclusion is suggested in the new issue of The CIS Macromonitor published by the Research Department of Eurasian Development Bank (EDB).
Yet, the economic dynamics was uneven. GDP growth declined slightly for oil and gas exporting countries and speeded up for labour exporters. At the same time, the countries with diversified exports saw a significant drop in their growth because of the deepening decline in Ukraine’s economic activity.
The paper states that the key event in 2014, which will continue to influence the CIS economies in the next year, were significant changes in the external situation, which worsened considerably in Q3: the prices of energy sources, which are the main exports from the region, fell drastically. In addition, despite differences in the monetary policies of the largest central banks, the US dollar appreciated considerably against other currencies.
The CIS Macromonitor emphasises that, “The direct and, for the time being, main effect of the external shock on the region’s economy was the sharp depreciation of the Russian rouble, with respect to regional currencies as well.” As far as one can judge, the devaluation was significantly fostered by Western sanctions. However, their effect on Russia’s economic activity and the stability of its financial sector was limited to date: the floating rate of the national currency, which has been maintained for two or three years before the 2014 events, ensures that the Russian economy quickly adapt to external changes.
Yet, irrespective of whether these effects remain limited in the future, the depreciation of the rouble resulted in that other CIS countries begin to feel serious negative pressure on their balances of payments. Since the CIS economies link their currencies to the US dollar and are relatively highly “dollarised,” the current situation threatens economic stability in the region.
“The worsened access to international capital markets for Russian companies and banks, as well as trade limitations caused by Western sanctions against Russia will remain another factor, which will affect economic growth in the region,” suggest EDB researchers. Despite the attempts to settle the Ukrainian conflict, which was the context for introducing sanctions, there is no certainty at the moment as for its mitigation. This factor will continue to hinder the recovery of investment activity in the Russian economy and will aggravate the negative effects of the fall in energy prices on its financial stability. Through the trade, financial and money transfer channels these effects produce a negative impact on other CIS economies.
“Our forecasts for GDP growth in the CIS countries in the next two years are based on the assumption that sanctions against Russia will persist through at least a significant part of 2015,” says the report. “Proceeding from this scenario one should expect that the region’s GDP will grow at lower rates in the next year and then speed up in 2016. The fact that the region’s largest economy — Russia — embarks on the floating rate regime will possibly help to avoid the decline in economic activity in the CIS countries as compared to
The e-version of the publication is available online.
Additional Information
Eurasian Development Bank is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth and the expansion of mutual trade and other economic ties in its member states. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.