Dushanbe, 29 October, 2015 – In the midst of an uncertain global economic environment, GDP growth for the Europe and Central Asia (ECA) region is expected to increase to 1.4 percent for 2015, with 1.8 percent growth projected for 2016. But prospects for countries vary widely: the western part of the region will likely continue its fragile recovery in 2016, while the eastern part of the region will increasingly suffer large income losses.
According to the newly released ECA region’s Economic Outlook, “Low Commodity Prices and Weak Currencies” the Europe and Central Asia region has still not fully recovered from the after-effects of the global financial crisis and part of the region is facing strong headwinds. To build economic resilience and set the stage for robust growth in the eastern part of the region, it is critical, therefore, to adjust to the ‘new normal’ of lower oil prices with exchange rate flexibility and an agile business climate, says the report.
For countries directly and indirectly affected adversely by lower oil prices in Eastern Europe and Central Asia, such as Tajikistan, GDP tells only a small part of the story when it comes to the sharp decline in spending power available to their citizens. Real domestic income of a country includes real GDP and also remittances received from abroad, as well as gains or losses from changes in export and import prices.
The effect of the oil price shock and devaluation of the ruble has had a much stronger adverse impact on buying power than what is reflected simply by GDP. Given the weaker buying power of many households in the eastern part of the region, there is a risk of reversal of the previous downward trend toward lower poverty rates across the region.
“To mitigate the risk of further deterioration of poverty trends, there is a need for flexible exchange rates, fiscal adjustment and reinvigoration of longer term reforms to facilitate investments in sectors with competitive job opportunities,” said Hans Timmer, World Bank Chief Economist for Europe and Central Asia, at a presentation of the report in Dushanbe today. “This adjustment is a necessary step toward building economic resistance and setting Tajikistan as well as other countries of the eastern part of ECA back on the path to robust growth and job creation.”
The South Caucasus, other Eastern European countries (Belarus, Moldova, and Ukraine), and Central Asia have been hard hit by the downturn in Russia and the oil price shock, directly and indirectly through the fall in oil prices, remittances and trade. Growth rates in 2015 are expected to be about half those seen in 2014 in the South Caucasus and Central Asia, while other Eastern European countries are estimated to have fallen further into recession.
For more information on the report, please visit: https://www.worldbank.org/en/region/eca/publication/europe-and-central-asia-economic-update-october-2015.