Countries in central and eastern Europe are being split in terms of their economic outlook, with Russia in deep recession but other countries benefiting from the low oil price. 

The economic outlook for central and eastern Europe is as divergent as it has been in years. With quantitative easing in the eurozone making economic recovery a realistic outlook in countries close to the common currency area, those with strong dollarisation or reliance on Russia are torn in the opposite direction.

As the most recent economic forecast of the European Bank for Reconstruction and Development (EBRD) shows, countries in central Europe and the Baltics – especially Poland, Slovenia, Slovakia and Hungary – are likely to see benefits from the weaker euro and low oil prices, as well as an improvement in economic convergence with more advanced countries. The region is expected to see growth of 2.9% in 2015 and 3% in 2016, according to the forecast published at the annual meeting of the EBRD in Tbilisi, Georgia, in May – up from January’s forecast of 2.6% for 2015.

But while a low oil price can be good for consuming countries, it is fatal for producers such as Russia. The country’s strong reliance on oil revenues, as well as hits to the economy caused by the conflict in Ukraine and related sanctions, see Russia in a deep recession in 2015 and Ukraine’s downturn is expected to be even bleaker.

Russia’s woes are spilling over into neighbouring countries such as Armenia, Belarus and Moldova, where negative growth is forecast. Oil producers Kazakhstan and Turkmenistan are seeing growth contract but remain positive. Tajikistan, Uzbekistan and Kyrgyzstan are also seeing growth contract as a significant number of emigrant workers return home from Russia leading to a drastic decline in remittances. This is an alarming development in countries where remittances amount to one of the most important drivers of gross domestic product.

A tightening of monetary conditions in the US will meanwhile put increasing pressure on emerging markets dependent on capital inflows and with highly dollarised economies. For those, there is a need to adapt to the external environment, ideally through a floating exchange rate, economists warn, as a failure to do so will be the single largest challenge to their economies’ recovery.

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