Europe’s Russian Connections


By Aasim M. Husain, Anna Ilyina and Li Zeng

(Version in Русский)

The conflict in Ukraine and the related imposition of sanctions against Russia signal an escalation of geopolitical tensions that is already being felt in the Russian financial markets (Chart 1). A deterioration in the conflict, with or even without a further escalation of sanctions and counter-sanctions, could have a substantial adverse impact on the Russian economy through direct and indirect (confidence) channels.

Chart 1

CESEE-Blog_7-30-14_final.001

What would be the repercussions for the rest of Europe if there were to be disruptions in trade or financial flows with Russia, or if economic growth in Russia were to take a sharp downturn? To understand which countries in Europe might be most affected, we looked at the broad channels by which they are connected to Russia—their trade, energy, investment, and financial ties. See also separate blog on Russia-Caucasus and Central Asia links.

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Links and Levers: How the Caucasus and Central Asia Are Tied to Russia


Alberto BeharBy Alberto Behar

(Version in Русский)

The countries of the Caucasus and Central Asia (CCA) are closely linked with Russia through trade, financial, and labor market channels. These ties have served the region well in recent years, helping it make significant economic gains when times were good. But how is the region affected when Russia’s economy slows down?

Underlying structural weaknesses have reduced Russia’s growth prospects for this year and over the medium term. Tensions emanating from developments in eastern Ukraine—including an escalation of fighting, the downing of Malaysian Airlines Flight 17, and new sanctions—have led to renewed market turbulence in Russian markets.

Experience has shown that lower growth in a large country can inflict significant collateral damage on neighboring countries with strong linkages of the type that the CCA has with Russia. (See also separate blog on Russia-Europe links.) We took a closer look at these connections to see how they transmit shocks, with particular attention to the impact on the region’s two main categories of economies—hydrocarbon importers and hydrocarbon exporters (see map).

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Seven Pillars of Prosperity—Diversifying Economic Growth in the Caucasus and Central Asia


By David Owen

(Version in Русский)

Medium-term economic growth prospects in the Caucasus and Central Asia region are strong. But, to secure ongoing prosperity, the eight countries of the region—Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan—will need to look beyond traditional sources of growth.

The challenge for policymakers will be to foster new and more diverse growth drivers, outside mining, oil, and gas.

There are seven policy pillars that can help them do that: Continue reading

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