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

The Russian invasion disrupted trade in energy, agricultural products and fertilizers and disrupted supply chains, leading to slower growth across Eastern Europe

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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.

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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% of corn and 37% of sunflower oil, is unlikely to be able to sow or harvest up to 20-30% of its land agricultural.

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  1. A couple kiss in Moscow in April.

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  2. Russian President Vladimir Putin delivers a speech during the Victory Day military parade in Moscow on May 9.

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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 also expected to decline by 10% this year and stagnate in 2023, according to the EBRD.

The country is facing the deepest economic contraction in nearly three decades as pressure from sanctions imposed by the United States and its allies mounts, according to an internal finance ministry forecast.

A contraction of 12% would put the economic pain on par with the turmoil of the early 1990s, when Russia’s Soviet-era economy tipped toward capitalism with a contraction not seen since the war.

“The main negative points are the oil embargo, the abandonment of Russian gas by the EU, as well as the increase in the departure of foreign companies,” said Natalia Lavrova, chief economist at BCS Financial Group in Moscow. . “All of this will likely expand gradually, with a lot of negative carryover into 2023.”

Christi C. Elwood