Both the Ukrainian and Russian economies are suffering from recent events. While weak domestic institutions and a fight with insurgents in the country’s East plague Ukraine, sanctions and low prices for oil and gas are hurting the Russian economy.
In both Russia and Ukraine, economic growth has declined substantially. Consequently, the public deficit-to-GDP ratio is increasing to dangerous levels. A normalization of relations between the two countries is necessary for both economies: as things stand, Ukraine is receiving aid from the IMF, the European Union and the United States, which could provide the necessary means to survive the standoff with Russia and potentially spur the economy eventually. Russia, on the hand, finds itself in a bind. Putin cannot abandon the separatists in eastern Ukraine without losing political capital at home. However, as long as Russia supports the separatists, the strong sanctions regime imposed by the United States and the EU will remain intact. Assuming oil prices will stay low in the foreseeable future, the stress placed upon the Russian economy will force Putin to make a difficult decision.
*2015 figures represent EBRD projections for GDP growth in that year.