The European Development Bank, EBRD, said on Thursday that the economies of Russia and Ukraine will contract by 10 percent and 20 percent respectively this year as the war between the two countries causes the “biggest supply shock” for 50 years.
Before Russia invaded its pro-Western neighbor on February 24, the London-based European Bank for Reconstruction and Development was penciling in a 3.5 percent increase for Ukraine and 3.0 percent for Russia.
The EBRD issued an emergency forecast saying it was the first international financial institution to update its guidance since the outbreak of war in Ukraine last month.
The latest forecast “assumes that a ceasefire is brokered within a few months, with the start of a major reconstruction effort in Ukraine shortly thereafter,” it said.
In such a scenario, Ukraine’s GDP should increase by 23 percent in the next year.
But the heavy economic sanctions imposed on Russia by the West would mean that it would register zero growth.
“The sanctions on Russia are expected to remain in place for the foreseeable future, condemning the Russian economy to stagnation in 2023, with negative spillovers to several neighboring countries in Eastern Europe, the Caucasus and Central Asia,” the EBRD said. said.
“With such uncertainty, the Bank intends to make a further forecast taking into account further developments over the next few months.”
Belarus – which borders both Ukraine and Russia, and also faces Western sanctions over its role in the conflict – was projected to shrink three percent this year and then stabilize in 2023.
Established in 1991 to help transform former Soviet bloc countries into free-market economies, the EBRD has since expanded its reach to include countries in the Middle East and North Africa.
The bank predicted that its investment sector, excluding Belarus and Russia, would grow by 1.7 percent this year, less than half of its previous growth forecast of 4.2 percent in November.
After this, the growth rate is expected to increase to five percent in 2023.
high uncertainty
“Projects are subject to an exceptionally high level of uncertainty, including major downside risks should hostilities escalate or exports of gas or other commodities from Russia become restricted.”
The world economy suffered “the biggest supply shock since at least the early 1970s”, stating that Russia and Ukraine “disproportionately high share of commodities including wheat, corn, fertilisers, titanium and nickel”. supply.”
EBRD chief economist Beta Javorcic said that inflationary pressures, which were already high before the invasion, “will certainly increase now, which will have a disproportionate impact on many low-income countries where the bank invests”, as well as poor areas. But also. population in most countries”.
The bank unveiled a two-billion-euro ($2.2 billion) “resilience” package earlier this month to help civilians, companies and countries affected by the war in Ukraine, including those hosting refugees.
“Europe has also seen the largest forced displacement of people since World War II, and the report examines the potential consequences of this migration,” it said.
“Ukraine’s skilled labor could boost some economies in the long term, especially in countries with aging populations,” it said.
But “in the short term, economies are facing financial pressures and administrative challenges as they ramp up the provision of housing, health care and schooling”.
The EBRD, which has condemned Russia’s invasion of Ukraine, said on Tuesday it would close its Moscow and Minsk offices in an “inevitable consequence of actions taken by the Russian Federation with the help of Belarus”.
The group has not undertaken any new investment projects in Russia since 2014, when Moscow invaded and then annexed Crimea.
The lender usually provides its economic updates in May and November.
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