War To Shrink Ukraine Economy By 45%, Says World Bank
According to the World Bank, Ukraine’s economy will contract by 45% in 2022 because of the Russian invasion of the country. The World Bank also predicted that the economic impact of the war would also hit the emerging markets and developing countries in Europe and Central Asia.
According to the Washington-based lender, the size of Ukraine’s contraction will be determined by the length and intensity of the war.
“Ukraine needs massive financial support immediately as it struggles to keep its economy going and the government running to support Ukrainian citizens suffering and coping with an extreme situation,” said Anna Bjerde, World Bank Vice President for Europe and Central Asia.
According to the World Bank, Russia’s economy, which sent soldiers into Ukraine on February 24, is expected to fall by approximately 11%. As a result of the US and its allies imposing numerous sanctions against it for the war in Ukraine, the world’s second-largest oil exporter has entered a recession.
According to the Institute of International Finance, Russia’s GDP is expected to decline by 15%.
Due to the compounding impact of the war’s economic shocks and the ongoing Covid-19 pandemic, the output of emerging markets and developing countries in Europe and Central Asia is likely to drop 4.1% this year, compared to the pre-war 3% growth prediction, according to the World Bank.
This would be the second contraction in many years and twice as large as the pandemic-induced contraction in 2020. In its second month, the crisis is expected to force the International Monetary Fund to cut its global economic estimates when it publishes them later this month.
The fund had previously cut its forecast for global growth in 2022 to 4.4%. Because of weakening economic momentum in the US and China, rising inflation, and increased energy prices, the January estimate was half a percent lower than the October 2021 projection.
According to the UK’s National Institute for Economic and Social Research, the war might cut global gross domestic product by as much as 1%, or $1 trillion, by 2023 and add up to 3% to global inflation in 2022 and roughly 2 percentage points in 2023.
The steep rise in oil and gas prices will exacerbate inflation and stifle growth, putting emerging market countries with few policy options challenging.
“The war has added to mounting concerns of a sharp global slowdown, surging inflation and debt, and a spike in poverty levels. The economic impact has reverberated through multiple channels, including commodity and financial markets, trade and migration links, and adverse impact on confidence,” the World Bank said.
The repercussions of the Ukraine war have greatly impacted the emerging and rising economies of Europe and Central Asia, which are already facing an economic downturn this year due to the lingering effects of the pandemic.
According to the World Bank, Belarus, Kyrgyz Republic, Moldova, and Tajikistan are expected to enter recession this year, while growth projections in all regional economies have been downgraded due to war spillovers, weaker-than-expected growth in the euro area, and commodity, trade, and financing shocks.
Russia and Ukraine account for roughly 40% of wheat imports in the region, with Central Asia and the South Caucasus accounting for 75%. According to the bank, Russia is a significant export destination for many countries, with remittances from Russia accounting for close to 30% of GDP in some Central Asian economies.
“Governments in the region should fortify their macroeconomic buffers and credibility of their policies to contain risks and deal with potential fragmentation of trade and investment channels; strengthen their social safety nets to protect the most vulnerable, including the refugees; and not lose focus on improving energy efficiency to ensure a sustainable future,” said Asli Demirguc-Kunt, World Bank chief economist for Europe and Central Asia.
The rise in global oil prices to multi-year highs, according to the lender, highlights the need to secure energy security by increasing renewable energy supplies and speeding up the design and execution of large-scale energy efficiency initiatives.
Oil prices have declined since reaching 14-year highs in March at 8.11 a.m. On Monday UAE time on Monday, Brent, the worldwide benchmark for two-thirds of the world’s oil, was 2.35 percent lower at $100.4. The benchmark for US crude, West Texas Intermediate, was down 2.47% at $95.83 a barrel. On March 7, Brent hit $139.13 per barrel and WTI $130.50.