The European Bank for Reconstruction and Development (EBRD) has unveiled surprising growth forecasts for Russia as it examines the impact of sanctions on the country.
The EBRD, which is holding its annual meeting in Yerevan, Armenia, has published its new growth forecasts for the regions it covers and highlighted how sanctions on Russia have impacted its economy.
“I think it was unrealistic to expect that sanctions against Russia would lead to a deep economic and financial crisis, as many had hoped,” Beata Javorcik, chief economist of the EBRD, told AFP.
Russia, which had economic growth of 3.6% last year, is expected to see its gross domestic product (GDP) grow by 2.5% this year, 1.5 percentage points higher than forecast in September, according to the EBRD’s latest projections.
The Russian economy has now returned to above pre-war levels in Ukraine. The country has “refocused its economy on the war effort. So this is leading to faster growth,” but “is it translating into an improvement in the well-being of its population? We can doubt it,” Javorcik said.
According to the EBRD, the sanctions have limited Russia’s technology imports and hindered skilled labour.
“Russian medium-term growth will be lower than it would have been without sanctions,” the economist said.
Impact of Middle East conflict on economies
The EBRD also covers countries in the southern and eastern Mediterranean (SEMED).
While the economy of the SEMED region is expected to grow this year, it will be less than expected, due to delays in large 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 be lasting,” the institution noted in a statement.
Egypt, for its part, has seen a sharp drop in its revenues from Suez Canal tolls, penalised by attacks by Yemeni Houthi rebels on ships to denounce the Israeli war in Gaza.
However, the EBRD notes that this loss of revenue has been more than offset by recent commitments from international partners, particularly the IMF, which granted Egypt an additional $5 billion in loans in March.
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 said on Wednesday that it expects growth of 3% across all of its regions this year, accelerating in part due to lower inflationary pressures, but slightly below its previous projections.
In addition to the war in Gaza, this downward revision is explained in particular by slower-than-expected growth in Central Europe and the Baltic States, but also by stabilisation of trade flows via Central Asian countries (which have become a kind of hub between Russia and the rest of the world since the war in Ukraine).
Despite the retaking of Nagorno-Karabakh by Azerbaijan in September, which led to a massive influx of refugees, Armenia’s growth forecast for this year has improved significantly to 6.2%.
“The (Armenian) government has helped to integrate Karabakh refugees through public spending” and “this has also stimulated the economy,” Javorcik said.
The EBRD also notes that May marks the 20th anniversary of the EU accession of eight countries; it covers the Baltic States and Central European states.
This integration has allowed for “significant growth in their income per capita” as their economies have become “more deeply integrated into European and global supply chains,” the EBRD also highlighted.
Video editor • Joanna Adhem
