Eurasia’s competitiveness performance has improved slightly over the last year, and it will have mostly recovered from the 2015 recession by the end of this year. GDP growth, barely positive in 2016, is projected to reach 1.7 percent in 2017. On average, Eurasia has progressed in almost all competitiveness factors, benefiting especially from lower inflation (the average dropped from 15.5 percent in 2016 to 8.2 percent in 2017) and progress in technological readiness, innovation, and primary education.4 Better-than-expected performances in the region’s two main commercial partners, China and Russian Federation, have also made business sentiment more upbeat.
Nonetheless, not all factors are improving—labor market efficiency has diminished in most countries—and the overall competitiveness of Eurasia remains below the global average. In particular, despite progress this year, the region lags significantly behind most economies in infrastructure, macroeconomic environment, financial development, and the innovation ecosystem (see Figure 2). In a reality of persistently low commodity prices and geopolitical uncertainties, Eurasian economies should accelerate reforms to foster diversification and innovation while continuing to consolidate their public finances.
Although the overall trend is positive for most Eurasian economies, there is little sign of convergence within the region. Its most competitive economies, including the Russian Federation (38th, up five), are maintaining their edge. This year’s most improved Eurasian economy started from a low base: Moldova moves up 11 places to 89th. Others that had been catching up in past years are slipping back, with Georgia (67th) and Kazakhstan (57th) losing eight and four places respectively.
There has been convergence in some pillars, including the macroeconomic environment—where gaps were large—and in one of the most homogenous dimensions, health and primary education. There is, however, not much narrowing of the wide gaps in technological readiness and infrastructure.
The Russian Federation (38th) improves five positions, mostly driven by the macroeconomic environment (up 38 positions to 53rd), rebounding strongly from the 2015–16 recession. However, its economy remains highly dependent on mineral exports and prospects remain uncertain. Weak links continue to include the financial market (107th), in particular the banking sector, along with aspects of institutional quality such as property rights (106th), judicial independence (90th), and corruption, which remains one of the most problematic factors for doing business. Russia has passed new laws to increase the minimum wage (2015) and protect temporary employment (2016), which have lowered labor market flexibility (75th, down 18 places); however, this may have a beneficial overall effect by restoring domestic purchasing power, which had been hit by inflation and the weak ruble.