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

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The World Bank has just swept away all the economic forecasts, already very pessimistic, drawn up over the past month on 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) predicted a 20% decline.

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

A collapse of Ukraine’s GDP by 45.1% in 2022

Yesterday Sunday, the World Bank announced a catastrophic collapse, predicting that Ukraine’s GDP would plunge by 45.1% in 2022, while Russia would see its GDP fall by 11.2%.

Since the beginning of this war, which began on February 24 by Russia, more than four million Ukrainians have left the country, fleeing to Poland, Romania and Moldova, and the prices of food like those of energy kept climbing.

The situation in Ukraine is badly affected by shrinking government tax revenues as businesses have closed or are only partially operational while trade in goods is severely disrupted. Cereal exports have become impossible “in large swathes of the country due to heavy damage to infrastructure”, noted for example Anna Bjerde, 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 would fall by -30.7%

Eastern Europe alone is expected to see its GDP plummet by 30.7% against growth of 1.4% expected before the invasion. This calculation incorporates the consequences of the sanctions that have been imposed on Belarus, an ally of Russia, for its role in the war. Not to mention that this part of Europe is dependent on natural gas to meet its energy needs.

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

A recession worse than that caused by the Covid pandemic

More broadly, the Washington institution announces that it expects GDP to contract by 4.1% this year for all emerging and developing countries in Europe and Central Asia, whereas it expected before the war to 3% growth. This is also much worse than the pandemic-induced recession in 2020 (-1.9%).

And, while the toll of human and material destruction continues to grow and a massive Russian offensive is in preparation, the institution explains that to draw up its forecasts, the Bank has assumed that the war will continue for “a few more months”.

Ukraine: tensions in the east of the country, where a “big battle” is preparing

The even darker scenario envisaged by the World Bank

But she warns of an even bleaker scenario if the conflict bogs down.

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

She added:

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

This manager from the World Bank recognizes that these latest forecasts are subject to “great uncertainty” with one unknown, the real impact of the war in the eurozone.

This is why the institution has therefore also considered a more pessimistic scenario taking into account a stronger impact on the euro zone, an escalation of sanctions and a shock to financial confidence.

This is essentially what the regulatory authorities said a week ago, who have been carefully scrutinizing the situation of European banks since the start of the conflict in Ukraine and the implementation of sanctions against Russia. Their message was intended to be optimistic but only in the short term: for the time being, they said, the banks’ exposure to Russian risk is generally limited, but the war should not drag on too long.

Ukraine war risks not a threat to European banks: European Banking Authority

A worse scenario than the 2008 financial crisis

Yet under this darker scenario of dragging out war, the World Bank has calculated that the region’s GDP would then contract by nearly 9%much more than the 5% suffered during the global financial crisis of 2009 and more than the 2% recession induced by the pandemic in 2020, recalls the World Bank.

For the Russiathe plunge in 2022 would no longer be -11.2%, mentioned earlier in this article, but would be -20%. For Ukraineit would fall by -45.1% at -75%.

(with AFP)