NEW YORK (TheStreet) -- Central, eastern and southeastern Europe face "unusual constellation of risks" the International Monetary Fund has said, while strategists caution over investor complacency.
The warning came as tensions in Ukraine rattle global markets and investor sentiment, even as growth slowly recovers across the eurozone. The region -- excluding Russia and Turkey -- is projected to grow 2.3% in 2014, almost twice last year's pace.
"Geopolitical tensions surrounding Russia and Ukraine, challenging global financial conditions as monetary policy in advanced economies normalizes, and the possibility of protracted weak growth in the euro area could take a toll on the region's growth prospects," the IMF noted in its spring Regional Economic Issues report, which was issued Tuesday..
BlackRock's global chief investment strategist, Russ Koesterich, said global stocks were vulnerable if the situation in Ukraine deteriorated, suggesting low volatility showed investors were overly complacent.
"If the violence (in Ukraine) continues to escalate and economic sanctions become more stringent, we are likely to see higher stock market volatility and increased selling," he told clients.
Julian Jessop, Capital Economic global chief economist, agreed, saying markets with the greatest economic and financial exposure to Russia would see sharper falls. Therefore, Germany's DAX would fall further than the FTSE in the U.K., for example.
"But Japan's Nikkei might also underperform due to renewed yen strength," he added. The economist said traditional safe-havens such as high-grade government bonds, gold and the yen would benefit. "We would expect any support to oil prices to be short-lived," he said. "Over the longer term, the crisis may accelerate the development of alternative energy supplies for Europe, including shale and imports from the U.S."