The Russian invasion will reduce the Ukrainian economy by 45%
The war on Ukraine and the sanctions on Russia are hitting economies around the world, emerging markets and developing countries Europe and Central Asia the region is expected to bear the brunt of this, according to the World Bank’s economic update for the region, released today.
The region’s economy is now expected to contract by 4.1% this year, compared to pre-war forecasts of 3% growth, as economic shocks from the war compound the ongoing effects of the COVID-19 pandemic. 19.
This would be the second contraction in as many years, and twice as large as the pandemic-induced contraction in 2020. Ukraine’s economy is expected to contract by around 45.1% this year, although the magnitude of contraction depends on the duration and intensity of the war. Hit by unprecedented sanctions, the Russian economy has already plunged into a deep recession, with output expected to contract by 11.2% in 2022.
“The scale of the humanitarian crisis unleashed by the war is staggering. The Russian invasion is a blow to the Ukrainian economy and has inflicted enormous damage to infrastructure,” mentioned Anna Bjerde, World Bank Vice President for Europe and Central Asia Region. “Ukraine needs massive financial support immediately as it struggles to sustain its economy and the government comes forward to support the suffering Ukrainian citizens facing an dire situation.”
The war has added to growing worries of a sharp global slowdown, soaring inflation and debt, and soaring poverty levels. The economic impact has rippled through multiple channels, including commodity and financial markets, trade and migration links, and the negative impact on confidence.
Emerging economies in Europe and Central Asia have also been hit hard
The war is also hitting emerging and developing economies in Europe and Central Asia hard, a region that was already heading for an economic downturn this year due to the lingering effects of the pandemic. Besides Russia and Ukraine, Belarus, the Kyrgyz Republic, Moldova and Tajikistan are set to slip into recession this year, while growth projections have been lowered in all economies due to the fallout from the war. , weaker-than-expected growth in the euro area , and commodity, trade and financing shocks.
Russia and Ukraine account for about 40 percent of wheat imports in the region and about 75 percent or more in Central Asia and the South Caucasus. Russia is also a major export destination for many countries, while remittances from Russia account for nearly 30% of GDP in some Central Asian economies (Kyrgyz Republic, Tajikistan).
“The war in Ukraine and the pandemic have once again shown that crises can cause widespread economic damage and roll back years of per capita income and development gains,” mentioned Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia. “Governments in the region should strengthen their macroeconomic buffers and the credibility of their policies to contain risks and deal with the potential fragmentation of trade and investment channels; strengthen their social safety nets to protect the most vulnerable, including refugees; and not losing sight of improving energy efficiency to ensure a sustainable future.”
The deep humanitarian crisis unleashed by the war was the most pronounced of the first global shock waves and will likely be one of the most lasting legacies of the conflict. The wave of refugees from Ukraine to neighboring countries is expected to eclipse previous crises.
As a result, support to host countries and refugee communities will be essential, and the World Bank is preparing operational support programs to neighboring countries to meet increased funding needs due to refugee flows. The war-triggered spike in global oil prices also highlights the need for energy security by boosting the supply of energy from renewable sources and stepping up the design and implementation of large-scale energy efficiency measures.
World Bank Group Response to the War in Ukraine
The World Bank Group is taking swift action to support the people of Ukraine. Since the start of Russia’s invasion of Ukraine on February 24, the Bank Group has mobilized $925 million in emergency financing to support Ukraine. This fast-paying support will be used to pay the salaries of hospital workers, pensions for the elderly and social programs for the vulnerable. The rapid financing is part of a $3 billion support package the Bank Group is preparing for Ukraine over the coming months. The invasion has already caused the biggest refugee crisis in Europe since World War II. The Bank Group is exploring how to support refugees in host countries.