Excluding Russia and Ukraine, ECA’s growth rate could almost halve to 2.4 per cent in 2023. An upward revision for Russia accounts for the 1.3 percentage points forecast upgrade for the region since January.
The growth in the region, which was significantly impacted by the pandemic and Russia’s invasion, is expected to rebound to 2.7 per cent annually between 2024 and 2025. The recovery is set to be driven by robust external and domestic demand and an expected easing of adverse growth shocks. Growth disparities within the region are expected to fade as migrant and capital flows from Russia decrease and the European Union’s (EU) economic growth improves, as per the Global Economic Prospects report by the World Bank.
Europe and Central Asia (ECA) region is projected to see a modest 1.4 per cent growth in 2023 amid Russia-Ukraine tensions, according to the World Bank.
Excluding Russia and Ukraine, the ECA region’s growth may decline to 2.4 per cent.
Divergences in regional growth are estimated to fade with improved EU economic growth and easing Russian flows.
However, the regional growth is expected to remain below its potential rate for the next three years due to tightened financial conditions and gradual fiscal consolidation across several countries.
Risks to the regional outlook are still skewed to the downside. They include a more intense or protracted Russian invasion of Ukraine, higher inflation with stricter monetary policies, and stress in the financial sector. A sharper-than-expected downturn in the euro area could further dampen external demand for Central Europe and the Western Balkans. Slower-than-expected growth in remittances from Russia, especially in Central Asia and the South Caucasus, could also pose a risk.
In 2022, ECA’s growth plummeted to 1.2 per cent, making it the slowest growing among the six emerging market and developing economy (EMDE) regions. Even without Russia and Ukraine, the region’s growth weakened to 4.8 per cent. This slowing growth was observed in most of the region’s economies, a consequence of Ukraine’s invasion, dwindling business and consumer confidence, soaring inflation, significant monetary tightening, and disruptions to energy supplies.
Notably, Eastern Europe saw a contraction of 20.2 per cent in 2022, predominantly in Ukraine. Central Europe and the Western Balkans, both more integrated into EU value chains, faced slowed growth due to sharp energy price increases, supply disruptions, and tighter monetary policy. In contrast, the South Caucasus and Turkey witnessed accelerated growth, supported by trade, migrant, and finance inflows from Russia and Ukraine, factors that also boosted growth in Central Asia.
The report also highlighted that inflation remains particularly high in the ECA region, especially in Turkey. Seventeen central banks in the region raised interest rates in 2022 to combat inflation, with six increasing them further in 2023. Despite these measures, real wages dropped as much as 3.3 per cent in Eastern Europe in the first half of 2022. Nevertheless, there have been recent signs of a deceleration in 12-month inflation rates in some ECA countries due to base effects and a decline in energy prices from last year’s record highs.
Fibre2Fashion News Desk (DP)
