Sanctions Hurt Eastern European Economies

"Sanctions on Russia will cause a sharp slowdown in economic growth across Eastern Europe this year, deterring foreign investment and lifting energy prices and borrowing costs, the European Bank for Reconstruction and Development has warned.

Most of the European countries that are closest to Russia showed surprising resilience during the first year of the war.

But many economies in the region are more reliant on energy-intensive factories than their counterparts in Western Europe and they could see their market share erode as their costs increase.

"We are expecting this year to be tough," said Beata Javorcik, the EBRD's chief economist, in an interview. "Emerging Europe is heavily dependent on manufacturing, so the loss of competitiveness matters very much."

The EBRD is one of the main international lending institutions in the post-Soviet bloc. Established in 1991, it has helped countries in the region build democracies and transition toward market economies.

On Thursday, it lowered its growth forecasts for most of the nations that share borders with the Russia, or have in the past relied on energy supplies from Russia.

The EBRD expects the economies of Hungary and Latvia to contract this year, while Poland -- the region's industrial powerhouse in recent years -- is forecast to grow by 1%, down from 4.8% in 2022.

Energy prices have fallen from last year's peaks in recent months, but they remain very high compared with the years running up to the Covid-19 pandemic, and the EBRD doesn't anticipate a return to those levels in the coming years.

It projects increased usage of renewable sources of energy, which should help lower costs for manufacturers and allow them to regain some lost competitiveness over several years.

"There has been a change in perceptions when it comes to the energy transition," Ms. Javorcik said. "Many countries perceived it as something that was being forced on them by Brussels, but now it's viewed through the prism of energy security."

Foreign investment has been key to lifting growth in the decades since the collapse of Communism, but proximity to Russia has made Russia's neighborhood seem like a risky place.

The EBRD expects foreign direct investment across the region to be low this year, another headwind for growth, but sees a recovery further out.

The EBRD projects that Russia's economy will contract by 3% in 2023 -- the second yearly contraction in a row -- as oil revenues decline, Western sanctions continue to bite.” [1] 

 

Amazing. The contraction in Latvia is the same as in Russia. So whom are we sanctioning here? Our-self? Are we completely stupid?

 

1.  World News: Sanctions Hurt Eastern European Economies
Hannon, Paul.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 17 Feb 2023: A.8.