Europe’s Russian Connections

By Aasim M. Husain, Anna Ilyina and Li Zeng

(Version in Русский)

The conflict in Ukraine and the related imposition of sanctions against Russia signal an escalation of geopolitical tensions that is already being felt in the Russian financial markets (Chart 1). A deterioration in the conflict, with or even without a further escalation of sanctions and counter-sanctions, could have a substantial adverse impact on the Russian economy through direct and indirect (confidence) channels.

Chart 1

CESEE-Blog_7-30-14_final.001

What would be the repercussions for the rest of Europe if there were to be disruptions in trade or financial flows with Russia, or if economic growth in Russia were to take a sharp downturn? To understand which countries in Europe might be most affected, we looked at the broad channels by which they are connected to Russia—their trade, energy, investment, and financial ties. See also separate blog on Russia-Caucasus and Central Asia links.

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Central, Eastern, and South-Eastern Europe: Safeguarding the Recovery as the Global Liquidity Tide Recedes

By Reza Moghadam, Aasim M. Husain, and Anna Ilyina

(Version in Türk)

Growth is gathering momentum in most of Central, Eastern, and South-Eastern Europe (CESEE) in the wake of the recovery in the euro area. Excluding the largest economies—Russia and Turkey—the IMF’s latest Regional Economic Issues report  projects the region to grow 2.3 percent in 2014, almost twice last year’s pace. This is certainly good news.

Figure 1

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Lost & Found in Eastern Europe: Replacing Funding by Western Europe’s Banks

There is little doubt the era of generous funding from Western Europe's banks to their subsidiaries in the East is over, but this doens't have to translate into a reduction of bank credit in the emerging economies of Europe. The IMF's latest analysis shows an increase in local deposits in most countries of the region has offset the withdrawal of funding from Western Europe.

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