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 new EBRD forecasts released on Wednesday. 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 all the regions it covers. “I think 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 Berd.
Russia, which saw economic growth of 3.6% last year, is expected to record a 2.5% increase in gross domestic product (GDP) this year, 1.5 points more than forecast in September , according to the latest EBRD projections. The Russian economy is now back above pre-war levels in Ukraine. The country “refocused its economy on the war effort. So this leads to faster growth,” but does this “translate into an improvement in the well-being of its population? We can doubt it,” said Beata Javorcik. According to the EBRD, the sanctions, although not working perfectly, have limited technology imports from Russia and are adding to the departure of multinationals as well as the exodus of a qualified workforce.
The impact of the sanctions can already be seen through the record loss announced at the beginning of the month by the Russian energy giant Gazprom, noted Beata Javorcik. “Russian growth in the medium term will be lower than it would have been in the absence of sanctions,” she stressed. 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.
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“The negative effects of the conflict on tourism in Jordan and Lebanon could prove lasting,” notes the institution in a press release. 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 war in Gaza. But the EBRD reports that this loss of income has been more than offset by recent commitments from international partners, in particular the IMF which in March granted an extension of 5 billion dollars in additional loans to Egypt.
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 slightly below its previous projections. In addition to the war in Gaza, this downward revision is explained in particular by slower growth than expected in Central Europe and the Baltic States, but also by a stabilization of trade flows via the countries of Central Asia (which have since become war in Ukraine 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 for this year, to 6.2%. . “The (Armenian) government contributed to the integration of Karabakh refugees through public spending” and “this also stimulated the economy,” explained Beata Javorcik. The EBRD also notes that the month of May marks the 20th anniversary of the accession to the European Union of eight countries it covers: the Baltic States and states of Central Europe. This integration allowed “significant growth in their per capita income” as their economies “integrated more deeply into European and global supply chains,” notes the institution.
