EBRD: Ukrainian economy will recover in 2023 if war ends in next two months, says EBRD

Russia’s war on its neighbor will plunge the two countries into the deepest economic contraction in more than 25 years, but Ukraine could bounce back strongly in 2023 if there is a ceasefire soon, the Bank has predicted. European for reconstruction and development.

The February 24 invasion ravaged Ukraine and saw Moscow impose sweeping sanctions, severing Russia from the global financial fabric and pushing up commodity and energy prices.

The dispute prompted the EBRD, which covers economic trends in Europe, Asia and Africa, to cut its forecast for economic expansion in its region to 1.7% this year, 250 basis points below its forecast. of November.

According to chief economist Beata Javorcik, Ukraine’s economy will contract by 20% this year, with military activities taking place in a territory accounting for 60% of its pre-COVID GDP. However, GDP could rebound by 23% in 2023 if there is a ceasefire “within a few months”, she added.

“Ukraine, which was a poor country to begin with, will get poorer,” Javorcik told Reuters. “We understand that between a third and a half of businesses have gone out of business and electricity consumption is at 60% of pre-war levels.”

Russia calls its actions in Ukraine a “special operation”.

The bank’s latest forecast is based on “optimistic assumptions” such as an easing in food prices and a drop in oil prices to $90 a barrel.

The Russian economy is expected to shrink by 10% this year and record zero growth in 2023 as the severity of sanctions increases. For both countries, the contraction would be the steepest since 1994, when economic turmoil following the fall of the Soviet Union ravaged the region.

The report calculates that Russia has lost about $30 billion in export revenue due to recent oil and gas sanctions, which equates to about 2% of GDP. “Even if the sanctions are lifted, Russia’s reputation as an investment destination will be damaged,” Javorcik said. “Talks of nationalizing multinational assets will be remembered for some time.”

The fallout from the conflict will be felt everywhere, Javorcik said, saying there was a “considerable risk” that some emerging market economies would tighten export restrictions to protect domestic consumers from further price increases. Central bank rate hikes would accelerate in this scenario.

Turkey was one of the countries facing “strong headwinds” due to a combination of rising energy and grain import costs, while lack of income from Russian and Ukrainian tourists added with pressure.

Growth in Turkey, the largest recipient of EBRD funds, has been reduced by 150 basis points to 2.0% this year and 3.5% in 2023.

EBRD governors – representatives of its member countries – will decide within days on a proposal to indefinitely suspend Russia and Belarus from access to its funding, Javorcik added.

The EBRD has not put new funds to work in Russia since Moscow annexed Crimea in 2014 and introduced a moratorium on new investment in Belarus following its disputed 2020 elections.

The lender, created three decades ago to invest in the former communist economies of Eastern Europe, now operates in around 40 economies.

Christi C. Elwood