DUSHANBE, October 27, 2015, Asia-Plus -- In the midst of an uncertain global economic environment, GDP growth for the Europe and Central Asia (ECA) region is expected to increase to 1.4 percent for 2015, with 1.8 percent growth projected for 2016, according to the ECA region’s Economic Outlook,  Low Commodity Prices and Weak Currencies , which was launched on October 26.

But prospects for countries reportedly vary widely: the western part of the region will likely continue its fragile recovery in 2016, while the eastern part of the region will increasingly suffer large income losses.

“The Europe and Central Asia region has still not fully recovered from the after-effects of the global financial crisis and part of the region is facing strong headwinds,” said Cyril Muller, World Bank Vice-President for Europe and Central Asia, on the occasion of the launch of the ECA region’s Economic Outlook in Astana, Kazakhstan.

“The eastern part of ECA is hit hard by declining commodity prices, particularly oil, while geopolitical risks and increased financial market volatility in emerging markets are dampening potential growth across all countries,” added Muller.  “To build economic resilience and set the stage for robust growth in the eastern part of the region, it is critical, therefore, to adjust to the ‘new normal’ of lower oil prices with exchange rate flexibility and an agile business climate.”

This Economic Update consists of two chapters. The first chapter -  Fragile Recovery in the West, Difficult Adjustments in the East  - describes the outlook for GDP growth, and goes beyond GDP in a couple of important areas. It shows that terms-of-trade losses for oil exporters are this year much larger than changes in GDP.

Furthermore, chapter one suggests a way to calculate real values of remittances.  For remittances-receiving countries, the changes in real remittances also outweigh changes in GDP.  Finally, it shows that at the height of the Greek crisis, households in Greece suffered larger losses in income than suggested by GDP numbers.

The second chapter -  Oil Prices and Real Exchange Rates  - is more analytical. It establishes the link between oil prices and real exchange rates, both theoretically and empirically. It also presents model simulations that describe the consequences of oil prices on sectoral patterns and income distribution. Understanding these pervasive impacts is crucial for the design of policy responses.

According to the report, the South Caucasus, some Eastern European countries (Belarus, Moldova, and Ukraine), and Central Asia have been hard hit by the downturn in Russia and the oil price shock, directly and indirectly through the fall in oil prices, remittances and trade. Growth rates in 2015 are expected to be about half those seen in 2014 in the South Caucasus and Central Asia, while other Eastern European countries are estimated to have fallen further into recession.