The World Bank predicts that Ukraine's economy will collapse by 45%

The World Bank predicts that Ukraine's economy will collapse by 45%

Destroyed buildings in Chernigov, Ukraine. / Eph

The agency estimates that Russia's GDP will fall by 11.2% and that the developing countries of Europe and Central Asia will contract by 4.1% due to the war

Edurne Martinez

The consequences of the war will be devastating, above all on a human level, but also economically. The Russian invasion will lead Ukraine to a collapse of its GDP of 45.1% this year, according to forecasts published by the World Bank, a scenario that warns that it could be even worse if the conflict stalls and drags on over time.

The Washington-based body calculates that the economic damage of this conflict will be much worse for the Ukrainians than for the Russians, whose economy will fall by 11.2%, four times less. The International Monetary Fund (IMF) estimated Ukraine's collapse for this year between 10% and 35%, so the World Bank goes even further.

But it can be even worse. If the impact in the eurozone is greater, there is an escalation of sanctions and a 'shock' in financial confidence, Russia's GDP would fall by 20% and Ukraine's by 75%.

The causes are clear: more than four million Ukrainians have fled their country, mostly to Poland, but also to Romania and Moldova, and grain and energy prices have skyrocketed like never before. Therefore, the Government's tax revenues have collapsed, more than half of the companies are closed and the rest are only partially open, and the trade in goods is seriously affected, the institution assures.

An exporting country that does not export

The country has halved its total exports and 90% of cereal sales abroad due to the closure of maritime transport in the Black Sea and the serious damage to its infrastructure, acknowledges the World Bank, which in preparing its forecasts assumes that the war will continue "for a few more months", although he does not specify a more exact period. For this reason, he warns that Ukraine needs “massive financial support immediately” in order to keep its economy and government running and to support citizens who are “facing an extreme situation.”

For this reason, the estimates are subject to "great uncertainty" and warns that the impact on the eurozone is still "an unknown quantity". What the institution does calculate is the impact that the war will have on the economy of Europe and Central Asia, closer to the conflict. Thus, the World Bank recognizes that the GDP of this area will contract by 4.1% this year in these emerging countries, despite the fact that before the war they expected growth of 3%. It will therefore be a much greater collapse than that caused by the pandemic, since in 2020 the GDP of this region represented a fall of 1.9%.

In Eastern Europe alone, GDP is expected to slump 30.7%, against growth expected before the invasion of 1.4%, with recessions not only in Russia and Ukraine, but also in Belarus, Moldova and Tajikistan. "The results are very disappointing," said Anna Bjerde, World Bank vice president for the Europe and Central Asia region, after the publication of the report, who acknowledged that this is the "second major shock that hits the economy in two years and arrives at a very precarious time when many countries were still struggling to recover their economy from the pandemic.”

Poverty will be multiplied by ten

And another reason for greatest concern is the increase in poverty. The World Bank forecasts that the proportion of the population living on less than $5.5 a day will rise from 1.8% in 2021 to 19.8% this year. For this reason, social support is requested: "We anticipate that the wave of refugees from Ukraine to neighboring countries will dwarf previous crises," says the report, which claims the fundamental role of host countries.

The World Bank reports that it is preparing operational support programs for countries close to Ukraine to meet their growing financing needs due to refugee flows.

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