Increasingly gloomy economic forecasts for Ukraine and its region

For Russia, the drop would be 20%. For Ukraine 75%.

The World Bank issued dire economic forecasts for Ukraine on Sunday due to the Russian invasion that is affecting the entire region. And he warned of an even bleaker scenario if the conflict bogs down.

Ukraine’s Gross Domestic Product will plummet 45.1% this year, Russia’s 11.2%, according to the latest projections from the Washington institution. For Ukraine, this is much worse than the 10% to 35% projected a month ago by the International Monetary Fund (IMF), or the 20% announced on March 31 by the European Bank for Reconstruction and Development (Bard).

The entire region is suffering the economic consequences of this war which, started on February 24, caused the flight of more than four million Ukrainians to Poland, Romania and Moldova and sent grain and energy prices skyrocketing.

The Bank expects a 4.1% contraction of GDP this year for all emerging and developing countries in Europe and Central Asia, while before the war it expected growth of 3%. It is also much worse than the recession caused by the pandemic in 2020 (-1.9%). In Eastern Europe alone its GDP is expected to plummet 30.7% versus the 1.4% growth expected before the invasion.

«The results of our analysis are very grim.“said Anna Bjerde, the World Bank vice president in charge of this region during a conference call.

«This is the second major shock to hit the regional economy in two years and it comes at a very precarious time as many economies were still struggling to recover from the pandemic.“, also noted. As for Eastern Europe, it is also subject to the sanctions imposed on Belarus for its role in the war.

Moldova, collateral victim

The authors of the report note that Moldova is likely to be one of the countries most affected by the conflict, not only because of its geographic proximity to the war, but also because of its inherent vulnerabilities as a small economy closely linked to the two countries, Ukraine. and Russia In addition, this part of Europe depends on natural gas to meet its energy needs.

However, the bleaker outlook is for Ukraine, as government tax revenues have shrunk, businesses have closed or are only partially operational, and trade in goods is severely affected. Cereal exports have become impossible”in large swaths of the country due to serious damage to infrastructure“, pointed out for example Anna Bjerde.

Poverty

Another reason for concern, highlights the development institution, is the increase in poverty. The share of the population living on $5.50 a day is expected to rise from 1.8% in 2021 to 19.8% this year, according to World Bank calculations.

In the development of all its forecasts, the Bank has assumed that the war will continue”some months“. But recognize that these are subjects”to great uncertaintywith one unknown, the real impact of the war in the euro zone.

For this reason, the institution has also considered a more pessimistic scenario, taking into account a greater impact on the euro zone, an escalation of sanctions and a shock to financial confidence. The region’s GDP would then contract by almost 9%, much more than the 5% suffered during the global financial crisis of 2009 and more than the 2% recession induced by the pandemic in 2020, the World Bank recalls.

For Russia, the drop would be 20%. For Ukraine 75%.

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