EBRD: Ukraine crisis weighs heavily on Georgia’s economy growth

The European Bank for Reconstruction and Development (EBRD) says the crisis in Ukraine is having a negative impact not only on the Ukrainian and Russian economies, but also across much of Eastern Europe and the Caucasus.

An EBRD report issued on May 14 stated the geopolitical situation had made foreign investment in the region appear riskier, caused a reduction in demand for exports and possibly less favorable tourism revenues.

In response, the EBRD decided to downgrade its growth forecasts for Georgia, along with Belarus, Moldova, Armenia and Azerbaijan.

In Georgia, despite an expected export boost from signing the Association Agreement (AA) with the European Union (EU) in June, the growth forecast had been reduced to four percent for 2014 and 2015 due to lower regional export demand in connection with the Ukraine-Russia crisis.

Despite this the bank remained optimistic. It said the AA with the EU was expected to boost exports thanks to a reduction or removal of trade barriers on agricultural products.

Snapshot of Georgia-Ukraine trade

The considerable change of trade turnover between Georgia and Ukraine was reflected in the first three months of 2014, stated Tbilisi-based think tank Policy and Management Consulting Group.

A report released by the organisation suggested exports to Ukraine, Georgia’s third largest trade last year, decreased by 55 percent in March 2014 compared to February and an almost 50 percent increase of imports from Ukraine in March 2014.

Ukraine was also the fifth largest source of imports to Georgia in 2013.

Spirits, wine, mineral water, fruit, Ferro-alloys and locomotives were the most common exports to Ukraine, while cigarettes, carbon steel products, sunflower and other cooking oils, chocolate and cacao products and coal were the most widely imported goods from Ukraine, according to latest data afrom Geostat, the state statistics office of Georgia.

Earlier this week Tbilisi-based think tank Economic Policy Research Center (EPRC) reported that the scale of foreign direct investments (FDI) from Ukraine, looked modest compared to the Netherlands, Azerbaijan and Turkey, with a total of $25.4 million USD.

However, experts forecast large investments from Ukraine were unlikely to happen in 2014 but added this would not pose a significant threat to Georgia’s economy.

EBRD: Ukraine crisis hurting Eastern Europe, Caucasus economies

EBRD economists forecast Ukraine would slump into deep recession this year and sanctions against Russia over its role in the Ukraine crisis would contribute to economic stagnation there.

Under the "most likely” scenario, Ukraine would return to recession in 2014, with a contraction of seven percent and show no growth in 2015, while the Russian economy would stagnate in 2014 and show only minimal growth next year, EBRD believed.

In Belarus, the EBRD’s original 2014 growth forecast of a meager 0.5 percent has been revised further - with zero growth now predicted.

Moldova had an 8.9 percent growth rate in 2013. The EBRD now predicted growth would slow to 2 percent in 2014.

Armenia’s growth forecast for 2014 has been downgraded from 3.5 percent in 2013 to about 3 percent for 2014.

Azerbaijan saw growth of 5.8 percent in 2013 but oil production fell at the start of 2014, which would have a slight impact on the economy. The EBRD said even if oil production managed to rebound, growth for 2014 would be about 3.5 percent.