Ukraine’s GDP will collapse (-45%), but the World Bank sees an even bleaker scenario

The World Bank has just swept away all the already very pessimistic economic forecasts made over the last month on Ukraine’s economic health due to the Russian invasion.

A month ago, the International Monetary Fund (IMF) calculated a drop in GDP of between 10% and 35%, and less than two weeks ago (March 31), the European Bank for Reconstruction and Development (EBRD) predicted a 20% drop.

| Read: 18 years of development erased: the extreme scenario of the Ukrainian economy

A collapse of Ukraine’s GDP by 45.1% in 2022

On Sunday, the World Bank announced a catastrophic collapse, forecasting that Ukraine’s GDP would plunge by 45.1% in 2022, while Russia’s GDP would fall by 11.2%.

Since the beginning of this war, launched on February 24 by Russia, more than four million Ukrainians have left the country, fleeing to Poland, Romania and Moldova, and the prices of food and energy have continued to rise.

The situation in Ukraine is severely affected by the reduction in government tax revenue, as companies have closed or are only partially operational, while trade in goods is severely affected. Grain exports have become impossible. “in large swaths of the country due to serious damage to infrastructure,” noted, for example, Anna Bjerde, World Bank Vice President in charge of this region during a conference call.

In fact, the World Bank has calculated the consequences of this conflict for the entire region.

The GDP of Eastern Europe would fall by -30.7%

In Eastern Europe alone its GDP is expected to plummet 30.7% versus the 1.4% growth expected before the invasion. This calculation incorporates the consequences of the sanctions that have been imposed on Belarus, Russia’s ally, for its role in the war. Not to mention that this part of Europe relies on natural gas to meet its energy needs.

In detail, Moldova could become one of the countries hardest hit by the conflict, not only because of its geographical proximity to the war, but also because of its inherent vulnerabilities as a small economy closely linked to the two countries, Ukraine and Russia.

A recession worse than the one caused by the Covid pandemic

In more general terms, the Washington institution announces that it expects GDP to contract by 4.1% 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%).

And, while the number of human and material damage continues to grow and a massive Russian offensive is being prepared, the institution explains that in preparing its forecasts, the Bank has assumed that the war will continue “for a few more months”.

Ukraine: tensions in the east of the country, where a “great battle” is being prepared

The even darker scenario envisaged by the World Bank

But he warns of an even bleaker scenario if the conflict bogs down.

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

She added:

“This is the second major shock to the regional economy in two years and comes at a very precarious time as many economies were still struggling to recover from the pandemic. »

this manager of the World Bank He acknowledges that these latest forecasts are subject to “great uncertainty” with one unknown, the real impact of the war in the eurozone.

Therefore, the institution has also considered a more pessimistic scenario taking into account a greater impact on the euro area, an escalation of sanctions and a blow to financial confidence.

This is essentially what regulators, who have been closely scrutinizing the situation of European banks since the start of the conflict in Ukraine and the application of sanctions against Russia, said a week ago. Their message was intended to be optimistic, but only in the short term: For the time being, they said, banks’ exposure to Russian risk is generally limited, but the war should not drag on too long.

Ukraine war risks not a threat to European banks: European Banking Authority

A scenario worse than the financial crisis of 2008

However, under this darker scenario of a protracted war, the World Bank has calculated that the region’s GDP would then contract by almost 9%much more than the 5% suffered during the 2009 global financial crisis and more than the 2% pandemic-induced recession in 2020, the World Bank recalls.

For the Russiathe drop in 2022 would no longer be -11.2%, mentioned earlier in this article, but would be -twenty%. For Ukrainewould fall -45.1% at -75%.

(with AFP)