Ukraine’s economy will drop 30% this year due to war, EBRD says

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Ukraine’s economy will plunge by almost a third in 2022, more than expected, in a scenario where the war ends this year, the European Bank for Reconstruction and Development has said.

The expected slowdown is deeper than the 20% contraction estimated by the EBRD in March due to a “bigger than expected contraction in Ukraine as the war drags on”, it said in its report.

The Russian invasion disrupted trade in energy, agricultural products and fertilizers and disrupted supply chains, leading to slower growth across Eastern Europe. Gas prices in Europe have reached historic highs, fueling inflation across the region and putting manufacturers at a disadvantage compared to US companies where gas is up to four times cheaper, the EBRD said.

“In addition to direct war damage, agricultural production is hampered by lack of fuel, access to seeds, fertilizers and equipment,” the bank said in its report. Ukraine, which accounts for nearly 10% of global wheat exports, 14% for corn and 37% for sunflower oil, is unlikely to be able to plant or harvest up to 20-30% of its farmland.

Speaking in Marrakesh, Morocco, EBRD President Odile Renaud-Basso said the bank would disburse 1 billion euros ($1.1 billion) this year to sectors of the Ukrainian economy affected by the war. The bank is also working to phase out its stakes in Russian companies, she said.

Forecasts assume that a ceasefire will be negotiated this year and the country’s reconstruction can begin in 2023, with the economy expected to grow by 25% next year.

The war has also exposed vulnerabilities in global supply chains, according to the EBRD. Two Ukrainian companies account for about 35% of the world’s supply of purified neon, a key component for manufacturing semiconductor chips.

The Russian economy is expected to shrink by 10% this year and stagnate in 2023, according to the EBRD.

(Updates with comment on EBRD investment in Ukraine in fifth paragraph.)

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Christi C. Elwood