OREANDA-NEWS. November 13, 2013. The Ukrainian and Belarusian economies are set to recover from the recent sluggish performance less strongly than previously expected, posting a modest growth of 1.5 and 1.0 per cent respectively in 2014.

They will be lagging behind the rest of the countries in the eastern Europe and the Caucasus region, which, on average, will record  growth of 2.0 per cent next year. The Moldovan economy is set to perform better and grow by 3.5 per cent in 2014, says the EBRD in its latest Regional Economic Prospects report, published today.

Ukraine’s economy has been in decline since the third quarter of 2012, affected by difficult external market trends, poor business environment and domestic policy uncertainty. Lower external demand and subdued steel and other commodity prices have led to a contraction of key sectors like machine building, steel and chemicals, while construction has continued to decline.

Credit activity has been very slow, as real interest rates in local currency have hovered at around 20 per cent and the national bank has continued to expand capital controls. While the recession is likely to end by the fourth quarter of 2013, due to the favourable base effects and a close-to-record grain harvest, future recovery is likely to be very slow, unless the authorities implement the reform agenda.

External risks remain very high as the national bank reserves have fallen to around 2.5 months of imports and the government's access to the international capital markets is severely limited.

The economy of Belarus has been unable to sustain the momentum of the temporary recovery following the 2011 crisis and is again showing signs of high stress. Export-oriented industry, the largest sector of the economy, is suffering from deteriorating external competitiveness in its traditional markets. Domestic demand, stimulated by public sector wages increase after the crisis, has helped support output growth but also contributed to the recent widening of the current account deficit. External risks are rising as the central bank continues to spend foreign exchange reserves and external sources of financing are drying up.

After the drought-induced downturn in 2012, Moldova’s output growth reached a healthy pace in the first half of 2013, led by manufacturing and trade. Short-term growth prospects are uncertain and depend on the evolution of remittances, exports and investment sentiment, while poor corporate governance in banks poses a risk to financial and broad macroeconomic stability.