War to cut Ukraine’s GDP by more than 45%, World Bank forecasts

WASHINGTON (Reuters) – Ukraine’s economic output is likely to shrink by a staggering 45.1 percent this year, the World Bank said on Sunday, as Russia’s invasion shut down businesses, slashed exports and made economic activity impossible in large swathes of the country.

The World Bank also predicted that Russia’s GDP for 2022 would fall by 11.2% due to the punishment of financial sanctions imposed by the United States and its Western allies on Russian banks, state-owned enterprises and other institutions.

“The World Bank’s War in the Region” Economic update He said the Eastern European region, which includes Ukraine, Belarus and Moldova, is expected to show a GDP contraction of 30.7% this year, due to shocks from the war and disruption to trade.

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Growth in 2022 in the Central European region, which includes Bulgaria, Croatia, Hungary, Poland and Romania, will decline to 3.5% from 4.7% previously due to the influx of refugees, higher commodity prices and deteriorating confidence hurting demand.

As for Ukraine, the World Bank report estimates that more than half of the companies in the country are closed, while others are operating at much lower capacity than usual. The closure of sea freight from Ukraine has cut off about 90% of the country’s grain exports and half of its total exports.

The World Bank said the war had made economic activity impossible in many areas, and had hampered planting and harvesting.

Estimates of infrastructure damage that exceeded $100 billion by early March – about two-thirds of Ukraine’s 2019 GDP – are outdated “as war broke out and caused more damage”.

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The bank said the 45.1% contraction estimate excludes the impact of the destruction of physical infrastructure, but said this would sabotage future economic output, along with the influx of Ukrainian refugees to other countries.

The World Bank said the scale of the downturn in Ukraine was “subject to a high degree of uncertainty” about the duration and intensity of the war.

The report’s downside scenario, which reflects further commodity price shocks and a loss of confidence in financial markets caused by the escalation of the war, could lead to a 75% contraction of Ukraine’s GDP and a 20% contraction in Russian production.

This scenario would result in a 9% contraction in the World Bank’s Europe and Central Asia region in emerging market and developing economies – more than double the decline in the baseline forecast.

“The Russian invasion deals a severe blow to the Ukrainian economy and has severely damaged infrastructure,” Anna Byrdie, World Bank Vice President for Europe and Central Asia, said in a statement.

“Ukraine needs massive financial support immediately as it struggles to keep its economy going and the government is working to support Ukrainian citizens who are struggling and coping with a difficult situation.”

The World Bank has already mobilized about $923 million in loans and grants for Ukraine, and is preparing another support package of more than $2 billion. Read more

“Rapid assistance from the International Monetary Fund and the World Bank has allowed Ukraine the fiscal space to pay the salaries of civilians, soldiers, doctors and nurses, while meeting external debt obligations,” US Treasury Secretary Janet Yellen, who oversees the US controlling stake in the World Bank, told US lawmakers during Hearing last week.

(David Lauder Report) in Washington. Editing by Matthew Lewis and Stephen Coates

Our criteria: Thomson Reuters Trust Principles.

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