Report: Tighter US Sanctions on Russia Pose Downside Risk to CIS

 

Moscow, Russia

January 11, 2018//-The tighter United Sates (U.S) sanctions on Russian could pose  a downside risk to the economy of the Commonwealth of Independent States (CIS).

The January 2018 estimate compiled by FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries  in Africa, Asia, Europe and the Americas, has warned.

In late July 2017, the U.S. Congress passed legislation that tightened sanctions on Russia in response to Russia’s alleged interference in the 2016 U.S. Presidential election.

The bill which targets Russia’s energy sector forbids U.S. companies from working on projects in which Russian firms own more than a 33 percent stake.

High oil prices will fuel the steady growth momentum, and higher-than-expected prices are an upside risk to the region’s growth forecast, the report noted.

“At the start of January, oil prices touched a three-year high, and the 30 November extension of the OPEC and Russia production cut deal should keep the gradual rebalancing of the global oil market in place in the coming year”, it stated.

The economy of the CIS got back on track last year, putting the 2015–2016 recession firmly in the past.

FocusEconomics said GDP for the region to have grown 2.1% in 2017, which would be the best result in five years, as higher commodity prices, strong global appetite for exports and emerging market assets bolstered activity.

The result is a notable turnaround from the recession that saw activity contract 1.9% at its height in 2015. The downturn was caused chiefly by a collapse in commodities prices and exacerbated by macroeconomic fragility across the reading, such as relatively poor business climates, structural distortions and weak public finances, according to the report.

Recovery still fragile

While growth has become entrenched in the region, the economic recovery is still fragile. Several economies suffer from weak diversification and are heavily reliant on natural resources for growth; they are therefore susceptible to price fluctuations.

In addition, the region has a challenging business environment, which acts as a headwind to investment. Furthermore, geopolitical concerns remain.

“Russia continues to have a difficult relationship with the West, and the threat of additional sanctions lingers; the breakaway region of Transnistria is causing friction between Moldova and Russia; and Ukraine remains in a military conflict with rebel-held regions, without a lasting resolution in sight”.

Looking into the future

In 2019, regional GDP is projected to also grow 2.1%. This month’s stable 2018 growth forecast reflects unchanged projections for all but two of the region’s economies. Uzbekistan’s prospects were revised up, while Kyrgyzstan’s outlook was downgraded, the report projected.

“Regarding the three countries that are not included in the regional GDP aggregate, analysts upgraded the 2018 GDP forecast for Georgia, while the projections for Ukraine and Turkmenistan were unchanged”.

However, downside risks to Ukraine’s outlook are high as political willpower to undertake reforms has dissipated, threatening the country’s IMF funding. Uzbekistan is projected to be the fastest growing economy in the region this year, with a 6.4% expansion.

On the other end of the spectrum, Azerbaijan is seen as the slowest growing economy, with expected growth of 1.5%.

Among the region’s larger economies, Kazakhstan is expected to grow at the fastest rate (3.3%), followed by Russia (1.9%) and Belarus (1.7%), the report noted.

African Eye Report

 

 

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