LONDON: Russia’s economy will grow further this year despite Western sanctions over its Ukraine invasion, while Israel’s war against Hamas in Gaza will weigh on neighbouring nations, Europe’s development bank forecast Wednesday.

The London-based European Bank for Reconstruction and Development (EBRD) issued fresh GDP projections for the regions in which it operates on the second day of its annual meeting, held this year in the Armenian capital of Yerevan.

Russia’s resilient economy is set to expand 2.5 percent in 2024, the EBRD predicted, adding that it was back above levels seen prior to its 2022 invasion of Ukraine.

That represented a major upgrade from the prior guidance of 1.0 percent that was given in September, as Moscow offsets the impact of sanctions with vast expenditure on its war machine.

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However, it still marks a significant slowdown from the 3.6 percent growth it registered in 2023.

‘Refocused on war effort’

“I think it was unrealistic to expect that sanctions against Russia would lead to a deep economic and financial crisis, as many had hoped,” EBRD chief economist Beata Javorcik told AFP.

Russia has “refocused its economy on the war effort”, she noted.

“So this is leading to faster growth” but “is this growth translating into greater wellbeing of its people? That’s doubtful,” Javorcik remarked.

Western sanctions do not function perfectly but they have nevertheless curbed technology imports into Russia.

And more generally, the Ukraine conflict has also helped spark an exodus of both multinational companies and highly skilled labour from Russia to elsewhere, the bank added.

Javorcik highlighted that sanctions helped spark a record annual loss for Russian state energy giant Gazprom in 2023, as the European market was practically shut to its gas exports.

“Russian growth in the medium term will be lower than it would have been in the absence of sanctions,” she concluded.

The EBRD, founded in 1991 to help former Soviet bloc countries switch to free-market economies, has since extended its reach and now includes countries in the Middle East and North Africa.

The lender, which invests alongside the private sector, has an operating area which spans Central and Eastern Europe, the Southern and Eastern Mediterranean, and Central Asia.

The institution forecast Wednesday that Mediterranean countries will be hampered due to delays in public investment projects in Egypt and the war in Gaza.

‘Lasting’ tourism impact

“The conflict’s negative effects on tourism in Jordan and Lebanon may prove to be lasting,” it warned.

Lebanon’s economy was forecast to expand by just 0.2 percent this year.

Egypt’s economy suffered due to slumping Suez Canal fees after shipping attacks by Yemen’s Iran-backed Houthi rebels who are protesting over Israel’s war in Gaza.

But this was partially offset by pledges of multi-billion-dollar funds from the IMF and other international partners.

Despite simmering tensions over the Ukraine and Gaza conflicts, the EBRD issued a bright forecasts for its entire operating zone.

The region’s economy is predicted to accelerate with 3.0-percent growth this year thanks to easing inflationary pressures, according to the EBRD.

However, that was weaker than its September forecast of 3.2 percent.

The bank blamed the downgrade partly on Gaza war fallout, as well as slower-than-expected growth in Central Europe and the Baltic States.

It also cited a stabilisation in trade flows passing through Central Asia nations, which have acted as a hub between Russia and the West in a bid to avoid sanctions.

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Turning to Armenia, the EBRD forecast its GDP will jump 6.2 percent this year, up from the 4.5 percent it forecast previously.

The upgrade came despite the resumption of hostilities with Azerbaijan over the disputed territory of Nagorno-Karabakh.

This was mainly because “the (Armenian) government has helped integrate refugees from Karabakh through public spending” and “and that also stimulated the economy”, Javorcik noted.