As War May Shrink Ukraine’s Economy By 45%, Russia, 11.2%
The World Bank Group in its latest Economic Update released on Sunday predicted that the raging war against Ukraine and sanctions on Russia is negatively impacting economies around the globe, with emerging market and developing countries in the Europe and Central Asia region hardest hit.
The war, the update said, has added to mounting concerns of a sharp global slowdown, surging inflation and debt, and a spike in poverty levels, resulting in economic impacts that have reverberated through multiple channels, including commodity and financial markets, trade and migration links and adverse impact on confidence.
Europe and Central Asia region’s economy is now forecast to shrink by 4.1% this year, compared with the pre-war forecast of 3% growth, as the economic shocks from the war compound the ongoing impacts of the COVID-19 pandemic.
This would be the second contraction in as many years, and twice as large as the pandemic-induced contraction in 2020.
The invasion has already caused the largest refugee crisis in Europe since World War II, with the Bank Group looking to support refugees in host countries.
Ukraine’s economy is expected to shrink by an estimated 45.1 percent this year, although the magnitude of the contraction will depend on the duration and intensity of the war.
Also, hit by unprecedented sanctions, the report said Russia’s economy has already plunged into a deep recession with output projected to contract by 11.2% in 2022.
Besides Russia and Ukraine, the World Bank projected that Belarus, Kyrgyz Republic, Moldova and Tajikistan would fall into recession this year, while downgrading growth projections in all economies due to spillovers from the war, weaker-than-expected growth in the euro area, and commodity, trade and financing shocks.
Russia and Ukraine account for about 40% of wheat imports in the region and about 75% or more in Central Asia and the South Caucasus. Russia is also a major export destination for many countries, while remittances from Russia are close to 30% of GDP in some Central Asian economies (like Kyrgyz Republic and Tajikistan).
A statement on the report quoted Anna Bjerde, World Bank Vice President for the Europe and Central Asia region, as saying “the magnitude of the humanitarian crisis unleashed by the war is staggering.
“The Russian invasion is delivering a massive blow to Ukraine’s economy and it has inflicted enormous damage to infrastructure. Ukraine needs massive financial support immediately as it struggles to keep its economy going and the government running to support Ukrainian citizens who are suffering and coping with an extreme situation,” she added.
The war is also hitting hard the emerging and developing economies of Europe and Central Asia, a region, the update continued, was already heading for an economic slowdown this year from the ongoing effects of the pandemic.
“The Ukraine war and the pandemic have once again shown that crises can cause widespread economic damage and set back years of per capita income and development gains,” said Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia. “Governments in the region should fortify their macroeconomic buffers and credibility of their policies to contain risks and deal with potential fragmentation of trade and investment channels; strengthen their social safety nets to protect the most vulnerable, including the refugees; and not lose focus on improving energy efficiency to ensure a sustainable future.”
The deep humanitarian crisis sparked by the war has been the most pronounced of the initial global shockwaves and will likely be among the most enduring legacies of the conflict. The wave of refugees from Ukraine to neighboring countries is anticipated to dwarf previous crises. As a result, support to host countries and refugee communities will be critical, and the World Bank is preparing operational support programs to neighboring countries to meet the increased financing needs from the refugee flows.
The war-triggered spike in global oil prices also serves to underscore the need for energy security by boosting energy supply from renewable sources and stepping up the design and implementation of large-scale energy efficiency measures.
As part of its response to the Ukraine war, the World Bank Group said it is taking fast action to support the people of Ukraine, and that since the invasion started on February 24, it has mobilized an emergency financing package of $925m in support for Ukraine.
This fast-disbursing support, the statement continued, will go to help pay wages for hospital workers, pensions for the elderly, and social programmes for the vulnerable, as part of a $3bn package of support being prepared for Ukraine over the coming months.