Russia and the CIS
The Commonwealth of Independent States is dominated by Russia, which accounts for about four fifths of the region’s output. Russia, having previously been united with the others under the Soviet Union, still plays the leading political role.
Due to its large regional output share, Russia’s performance determines much of the aggregate CIS growth performance. A conflict with Ukraine and resulting tension between Russia and the West that has led to mutual sanctions are severely damaging its economy. Currency developments are adding to its woes: the rouble is now at its lowest level since the 1998 default, making imports very expensive and leading to high levels of inflation. The central bank has responded by raising interest rates, further harming economic prospects. The weakening of oil prices from late 2014 is also adding to Russia’s malaise. Overall, this crisis is expected to weigh on economic prospects for the short and medium-term outlook. Growth is expected to average just 1.3% between 2015 and 2019, a significant downward revision from the expectation of some years ago when Russia was a promising member of the fast-growing BRICS economies.
Instability in Russia has negatively affected the region as a whole. Kazakhstan has seen economic growth slow to the weakest rate since 2009 and is further grappling with a devaluation of its currency. Falling oil prices are also weighing on its medium-term economic prospects. The same story is unfolding in other economies of the CIS such as Tajikistan, Uzbekistan, and Moldova, as most are dependent on the agricultural and mineral commodities sectors, where prices are falling on a global scale.
Ukraine and Turkmenistan are not formally members of the CIS but in practice they participate in the organisation and may yet join. Ukraine’s economy has deteriorated significantly since the outbreak of a military conflict with Russia in 2014, and is expected to have contracted by as much as 9% in 2014. The future outlook is highly uncertain given its dependence on the escalation trajectory of the conflict but the central expectation is for the economy to remain in recession for at least a couple of years. Turkmenistan, on the other hand, has performed very well in 2014 and growth is expected to remain strong in the outer years as large public investment projects are completed.