Ukraine’s GDP will collapse (-45%), but the World Bank sees an even bleaker scenario

The World Bank has just removed all economic forecasts, already very pessimistic, that have been made over the past month about the economic health of Ukraine due to the Russian invasion.

A month ago, the International Monetary Fund (IMF) calculated a drop in GDP between 10% and 35%, and less than two weeks ago (March 31), the European Bank for Reconstruction and Development (Berd) forecast a 20% drop.

| Read: 18 years of development erased: the extreme scenario of the Ukrainian economy

Ukraine’s GDP collapses by 45.1% in 2022

The World Bank on Sunday announced a catastrophic meltdown, predicting that Ukraine’s GDP would fall by 45.1% in 2022, while Russia would see its GDP fall by 11.2%.

Since the beginning of this war, launched on February 24 by Russia, more than four million Ukrainians have left the country, fled to Poland, Romania and Moldova, and food prices such as energy prices have continued to rise.

The situation in Ukraine is severely affected by shrinking government tax revenues as businesses have closed or only partially operate while trade in goods is severely disrupted. Grain exports became impossible “in large areas of the country due to the massive damage to infrastructure”, I noted, for example, Anna Bayerdi, the Vice President of the World Bank in charge of this region during a conference call.

In fact, the World Bank has calculated the consequences of this conflict for the entire region.

Eastern Europe’s GDP will fall by -30.7%

Eastern Europe alone is expected to see a GDP decline of 30.7% versus the 1.4% growth projected before the invasion. These accounts include the consequences of sanctions imposed on Belarus, Russia’s ally, for its role in the war. Not to mention that this part of Europe depends on natural gas for its energy needs.

In detail, Moldova could become one of the countries most affected by the conflict, not only due to its geographical proximity to the war, but also due to its inherent weaknesses as a small economy closely linked to the two countries, Ukraine and Russia.

A recession worse than the covid-19 pandemic

More broadly, the Washington Foundation announced that it expects gross domestic product to contract by 4.1% this year for all emerging and developing countries in Europe and Central Asia, while before the war it forecast growth of 3%. This is also much worse than the recession caused by the pandemic in 2020 (-1.9%).

As the toll of human and material devastation continues to increase and the preparation for a large-scale Russian attack continues, the institution explains that to make its forecast, the bank assumed the war would continue for “a few more months.”

Ukraine: Tensions in the east of the country as it prepares for a ‘big battle’

The darkest scenario envisaged by the World Bank

But she warns of a bleaker scenario if the conflict falters.

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

She added:

This is the second major shock to the regional economy in two years and comes at a very uncertain time as many economies are still struggling to recover from the pandemic. »

This is the manager from the World Bank You realize that these latest forecasts are subject to “great uncertainty” with an unknown effect, the true impact of the war in the Eurozone.

This is why the establishment has considered a more pessimistic scenario Taking into account the stronger impact on the Eurozone, Escalation of sanctions and a shock to financial confidence.

This is what the regulatory authorities said a week ago, which have been carefully scrutinizing the position of European banks since the start of the conflict in Ukraine and the implementation of sanctions against Russia. Their message was meant to be optimistic but only in the short term: For now, they said, banks’ exposure to Russian risks is generally limited, but the war should not last long.

Ukraine War Risks No Threat to European Banks: European Banking Authority

Worse scenario than the 2008 financial crisis

However, under this bleaker scenario of a protracted war, the World Bank calculates that Then the region’s GDP will shrink by about 9%much more than 5% suffered during the global financial crisis of 2009 and more than 2% suffered from the recession caused by the pandemic in 2020, the World Bank recalls.

to me Russiathe drop in 2022 will not be -11.2%, mentioned earlier in this article, but it will be -20%. to Ukrainewill decrease by -45.1% by -75%.