Ever bleaker economic forecasts for Ukraine and Russia

The World Bank issued dire economic forecasts for Ukraine on Sunday due to the Russian invasion which is impacting the entire region. And, she warned of an even bleaker scenario if the conflict bogged down.

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The Gross Domestic Product of Ukraine will plunge by 45.1% this year, that of Russia by 11.2%, according to the latest projections from the Washington institution.

For Ukraine, this is much worse than the 10% to 35% projected a month ago by the International Monetary Fund (IMF), or the 20% announced on March 31 by the European Bank for Reconstruction and Development (Bard).

The entire region is suffering the economic consequences of this war, which started on February 24, caused the flight of more than four million Ukrainians to Poland, Romania and Moldova and caused the prices of cereals and energy to soar. .

The Bank expects a contraction of 4.1% in GDP this year for all emerging and developing countries in Europe and Central Asia, whereas before the war it expected growth of 3% . This is also much worse than the pandemic-induced recession in 2020 (-1.9%).

Eastern Europe alone is expected to see its GDP plummet by 30.7% against growth of 1.4% expected before the invasion.

“The results of our analysis are very grim,” said Anna Bjerde, the World Bank’s vice president in charge of this region during a conference call.

“This is the second major shock to hit the regional economy in two years and it comes at a very precarious time as many economies were still struggling to recover from the pandemic,” she also noted.

As for Eastern Europe, it is also subject to the sanctions imposed on Belarus for its role in the war.

The report’s authors note that Moldova is thus likely to be one of the countries hardest hit by the conflict, not only because of its geographic proximity to the war, but also its inherent vulnerabilities as a small economy. closely linked to the two countries, Ukraine and Russia.

In addition, this part of Europe is dependent on natural gas to meet its energy needs.

The bleakest outlook, however, is for Ukraine, as government tax revenues have shrunk, businesses have closed or are only partially operational and trade in goods is severely disrupted. Cereal exports have become impossible “in large areas of the country due to heavy damage to infrastructure”, noted for example Anna Bjerde.

Another cause for concern, notes the development institution, is the increase in poverty. The proportion of the population living on $5.50 a day is expected to rise from 1.8% in 2021 to 19.8% this year, according to World Bank calculations.

In developing all of its forecasts, the Bank has assumed that the war will continue for “a few more months”.

But she recognizes that these are subject to “great uncertainty” with one unknown, the real impact of the war in the euro zone.

The institution has therefore also considered a more pessimistic scenario taking into account a stronger impact on the euro zone, an escalation of sanctions and a shock to financial confidence.

The region’s GDP would then contract by almost 9%, much more than the 5% suffered during the global financial crisis of 2009 and more than the 2% recession induced by the pandemic in 2020, recalls the World Bank.

For Russia, the plunge would be 20%. For Ukraine 75%.

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