The ongoing political and economic turmoil in Russia and Ukraine is hammering Eastern European trade and exports.

New data from the EBRD shows that 16 out of 24 countries in the development bank’s Central and South-eastern Europe region experienced a big drop-off in export volumes over the last three months of 2014, mainly those economies dependent on exports to the Russian market.

And while EBRD economists have told GTR that a general recovery is underway throughout the region – based mainly on growing domestic consumption – it has drastically downgraded its economic forecast for both Russia and Ukraine.

Having predicted a contraction of 0.2% for the Russian economy this year back in September 2014, the EBRD has now revised that downward to a shrinkage of 5%, on the back of ongoing bilateral sanctions and chronically low oil prices.

“Russian gas exports fell significantly both to Ukraine – by around 50% – and to Europe – by around 10%. The fall in exports to Ukraine is mostly due to the gas dispute, while European exports may have been influenced by several factors including a milder winter than usual,” the EBRD’s lead regional economist, Peter Tabak told GTR.

The EBRD, which has been extremely active in the Russian market, has issued a far more brutal outlook for Russia than most forecasters. Its forecast comes in the same week the IMF predicted a 3.5% shrinkage, down from an initial -3% prediction.

Today (January 21), the research firm Capital Economics also predicted a 5% contraction, saying that “a deep recession in Russia now looks inevitable as a combination of low oil and gas prices, economic sanctions and high interest rates takes a heavy toll on an already-weak economy”.

And while oil prices are having a serious drag on Russia’s economy, its inability to trade other goods and services is having a making a big dent in the Kremlin’s coffers.

Meanwhile, Alexander Plekhanov – an economist covering Belarus, Kazakhstan, Mongolia and Russia for the EBRD – said in an email exchange that even non-sanctioned sectors such as car imports have “contracted significantly in recent months”.

In Ukraine, the picture looks bleaker still for those involved in trade. The IMF has this week speculated that the government will need an additional US$7bn in bailout money, with international reserves having declined to one month of imports, despite the government attempting to introduce capital controls to stem the flow of money out of the country.

What’s more, non-performing loans are running close to 20% in Ukraine, with corporate balance sheets “mirroring bad loans on bank balance sheets” and “needing to be cleansed of liabilities that are no longer performing”, according to the EBRD. The development bank now forecasts identical shrinkage (5%) in Ukraine as in Russia for 2015, an improvement on the 7.5% fall in 2014, but with the massive caveat that the situation is still extremely volatile.

Banks are remaining extremely bearish on the country – a sign to traders that the possibility of opening credit lines to Ukraine in 2015 is very remote. Bank of America Merrill Lynch’s Eastern Europe, Middle East and Africa strategist David Hauner this week ranked Ukraine bottom of all 56 countries in the region, in terms of the risk of doing business there.