Russia's invasion of Ukraine this week will have significant and far-reaching implications and while reports of talks raise hopes, a halt to fighting does not look imminent. Russia's economy is likely to be hit hard by the sanctions and the sharp tightening of financial conditions this week. For the rest of the region, energy prices look set to remain elevated and this will keep inflation across the region high for a prolonged period of time, prompting further interest rate hikes. And Turkey’s economy remains vulnerable if external financing conditions tighten due to increased risk aversion.
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