As a result of the invasion of Ukraine, many surrounding countries will suffer severe hardship, with Russia predicted to fall into recession, World Bank says
World Bank has said that as the Russian invasion and the impact of a “deep humanitarian crisis” takes their toll, Ukraine’s economy is now on course to shrink by almost half in 2022.
The war-torn country’s GDP is projected to shrink by about 45% in 2022, with the havoc also spreading to the industry in the east and a blockade of Black Sea ports in the south of Ukraine.
With some nations pushed to seek outside help from international agencies to prevent them from defaulting on existing debts, many of those surrounding Ukraine would suffer severe hardship and Russia would also fall into recession, the Washington-based development organization projected.
On April 10, the World Bank said in its forecast publication:
“The war is having a devastating impact on human life and causing economic destruction in both countries, and will lead to significant economic losses in the Europe and Central Asia region and the rest of the world.”
Central bank bosses and finance ministers will be hosted by the International Monetary Fund (IMF) and the World Bank at their annual spring meetings later this week.
The head of the IMF, Kristalina Georgieva, and David Malpass, the president of the World Bank, are expected to confirm that they aim to offer additional financial support to countries affected by the invasion, many of which are suffering soaring food costs.
Although Georgieva last month warned of a severe recession in many countries close to the conflict, she said it was unlikely that the war would trigger a global financial crisis.
The Bank said that economic output across the region would decline by 4.1% — twice as steep as the recession in 2021 from the Covid-19 crisis – prompted by the second major shock in two years, after the pandemic.
The World Bank’s Central Asia and Europe regional data stretch from the Russian Federation in the east to Ireland in the west. However, the report was keen on developing and emerging countries in the Balkans, eastern and central Europe, the former Soviet republics, and Turkey.
It said that many of the former Soviet Republics would be hit hardest by the ripple effects of the war and many would be compelled to look for further loans from the IMF and World Bank to remain solvent.
The Bank highlighted Tajikistan and the Kyrgyz Republic as the most vulnerable and in need of further packages of financial support although lending to the Kyrgyz Republic, Tajikistan, and Uzbekistan have already increased during the pandemic.
While output among eastern European countries – including Belarus, Ukraine, and Moldova – is expected to be dragged 30.7% lower, the Russian Federation’s economy is forecast to shrink by 11.2% this year.
If all access to the Black Sea is cut off by Russian forces, the report said, Ukraine’s economy, which depends heavily on agriculture, could be hit further. A fall in traffic of more than 75% is already being experienced by Ukraine’s ports and that figure could be pushed higher with the capture of Odesa if it ever happens.
The number of ships arriving in Russian ports has reduced by almost half due to sanctions since the start of the invasion, leading to a knock-on effect on neighboring countries that depend on Ukrainian and Russian exports. The wider region has also been hit by a decline in remittances – cash sent home by workers living abroad.
The World Bank report reads:
“The war’s impacts are cascading through the region’s strong trade, financial and migration linkages, resulting in considerable economic damage to neighboring countries.”
In that context, the World Bank would probably be compelled to do a revision of its forecasts and predict larger falls in GDP if the war continues.
An extra 3% decline across the euro area in 2022 could be a downside scenario, “reflecting the impact of commodity price shocks from the escalation of the war”. In turn, this reduces Russian exports to the euro area and would prompt additional sanctions.
“The downside scenario also assumes a shock to financial confidence, a 20% contraction in Russia’s GDP, and a 75% contraction in Ukraine’s GDP.”
According to predictions, Turkey’s economy which has come under strain from high levels of unemployment and inflation will grow by 1.4% this year.