Ukraine’s economy could shrink by up to 35% in 2022, IMF says | International Monetary Fund (IMF)

Ukraine’s war-torn economy could shrink by up to 35% this year if the Russian invasion becomes a protracted conflict, the International Monetary Fund has warned.

In an initial assessment, the IMF said loss of life, damage to critical infrastructure, trade disruptions and the outflow of refugees would cause gross domestic product to decline by at least 10% in 2021.

However, he pointed out that the experience of other countries affected by recent wars, such as Iraq and Syria, suggested the impact could be much more severe.

The IMF also said the war – which has already driven energy prices soaring – would cause “devastating” damage to the global economy.

The IMF last week announced a $1.4 billion emergency financial support package to help the country cope with the mounting financial costs of a war that has shut nearly half of the banks and the central bank’s difficulty in delivering cash to branches and ATMs.

“While geopolitical tensions with Russia had already restricted Ukraine’s access to markets, the escalation towards a Russian invasion of Ukraine and all-out war on February 24 has dramatically altered the outlook for the Ukraine,” according to a report prepared by IMF staff.

“A deep recession and significant reconstruction costs are to be expected, against the backdrop of a humanitarian crisis. With the ongoing war, the situation remains extremely fluid and any forecast at this stage is subject to massive uncertainty.

The report notes that Ukraine is facing a “massive” humanitarian shock, with indications of a rapid increase in loss of life and significant destruction of infrastructure across the country.

Air and sea ports had been closed and significant damage had been suffered at Mariupol (through which 50% of total exports are shipped) and at the majority of airports. A large number of roads and bridges were destroyed, further crippling transportation and logistics.

The IMF admitted there was ‘massive uncertainty’ about the economic effects of the war, but said instead of forecasting 3.5% growth this year it now expected a deep recession . The forecast of a 10% drop in GDP was based on the rapid end of the fighting and financial assistance from donor agencies.

“However, the intensity of the ongoing conflict is causing widespread destruction of Ukraine’s productive capacity and rapidly worsening the outlook. Increased loss of physical capital stock and mass migration would lead to a much more pronounced contraction in output, a collapse in trade flows, an even smaller capacity to collect taxes, and a greater deterioration in fiscal and external positions. .

“The data on wartime real GDP contraction (Iraq, Lebanon, Syria, Yemen) suggest that the annual output contraction could possibly be much higher, in the order of 25-35%.”

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The previous conflict between Ukraine and Russia, which involved Moscow’s annexation of Crimea, led to a contraction of the Ukrainian economy by 6.6% in 2014 and another 10% in 2015. the more likely that Ukraine will suffer the kind of losses suffered in other conflict-affected countries.

The IMF estimates that Russia will also suffer a deep recession and will provide an estimate of the impact on output in its global economic outlook due out next month.

Vladyslav Rashkovan, the IMF’s alternate executive director for Ukraine, said: “Russia’s continued aggression against Ukraine, in addition to humanitarian and economic losses, will also lead to significant fallout around the world: deterioration food security, increased consumption of energy and process raw materials, growing inflationary pressures, disruption of supply chains, increased social spending for refugees and increased poverty. global economic damage from this war will be devastating.

Christi C. Elwood