Ukraine’s economy is on course to contract by almost half this year as the Russian invasion and the impact of a “deep humanitarian crisis” takes its toll, the World Bank has said.
With a blockade of Black Sea ports in the south of Ukraine and the havoc caused to industry in the east, the war-torn country’s GDP is projected to shrink by about 45% in 2022.
The Washington-based development organisation said Russia would also fall into recession and many countries surrounding Ukraine would suffer severe hardship, with some pushed to seek outside help from international agencies to prevent them defaulting on existing debts.
“The war is having a devastating impact on human life and causing economic destruction in both countries, and will lead to significant economic losses in the Europe and central Asia region and the rest of the world,” the World Bank said in its forecast published on Sunday.
The Bank and the International Monetary Fund (IMF) will host finance ministers and central bank bosses at their annual spring meetings this week.
David Malpass, the president of the World Bank, and the head of the IMF, Kristalina Georgieva, are expected to say they plan to offer extra financial support to countries affected by the invasion, many of which are suffering spiralling food costs.
Last month, Georgieva said it was unlikely the war would trigger a global financial crisis, but warned of a severe recession in many countries close to the conflict.
The Bank said the second major shock in two years, after the pandemic, would lead to a 4.1% decline in economic output across the region – twice as steep as the recession in 2020 from the Covid-19 crisis.
The World Bank’s Europe and central Asia regional data stretches from Ireland in the west to the Russian Federation in the east, but the report focused on emerging and developing countries in central and eastern Europe, the Balkans, Turkey and the former Soviet republics.
It said the ripple effects of the war would hit many of the former Soviet republics hardest and many would be forced to seek further loans from the World Bank and the IMF to remain solvent.
Lending to Uzbekistan, Tajikistan, and the Kyrgyz Republic has already increased during the pandemic, the Bank said, though it highlighted Tajikistan and the Kyrgyz Republic as the most vulnerable and in need of further packages of financial support.
The Russian Federation economy is forecast to shrink by 11.2% this year, while output among eastern European countries – including Moldova, Belarus and Ukraine – is expected to be dragged 30.7% lower.
Ukraine’s economy, which depends heavily on agriculture, could be hit further if all access to the Black Sea is cut off by Russian forces, the report said.
Ukraine’s ports have already suffered a fall in traffic of more than 75% and the capture of Odesa, if it were to happen, could push that figure higher.
Sanctions mean that the number of ships arriving in Russian ports is down by almost half since the start of the invasion, leading to a knock-on effect on neighbouring countries that depend on Russian and Ukrainian exports. A decline in remittances – cash sent home by workers living abroad – has also hit the wider region.
“The war’s impacts are cascading through the region’s strong trade, financial and migration linkages, resulting in considerable economic damage to neighbouring countries,” the World Bank report said.
A continuation of the war would probably force the World Bank to revise its forecasts and predict even larger falls in GDP.
It said a downside scenario could include an extra three-percentage-point decline across the euro area in 2022, “reflecting the impact of commodity price shocks from escalation of the war. In turn, this triggers additional sanctions and reduces Russian exports to the euro area.
“The downside scenario also assumes a shock to financial confidence, a 20% contraction in Russia’s GDP, and a 75% contraction in Ukraine’s GDP.”
Turkey’s economy, which has come under strain from high levels of inflation and rising unemployment, is predicted to grow by 1.4% this year.
