Ukraine’s economic output will likely contract by a staggering 45.1% this year as Russia’s invasion has shuttered businesses, slashed exports and rendered economic activity impossible in large swaths of the country, the World Bank said on Sunday.
The World Bank also forecast Russia’s 2022 GDP output to fall 11.2% due to punishing financial sanctions imposed by the United States and its Western allies on Russia’s banks, state-owned enterprises and other institutions.
The World Bank’s “War in the Region” economic update said the Eastern Europe region, comprising Ukraine, Belarus and Moldova, is forecast to show a GDP contraction of 30.7% this year, due to shocks from the war and disruption of trade.
Growth in 2022 in the Central Europe region, comprising Bulgaria, Croatia, Hungary, Poland and Romania, will be cut to 3.5% from 4.7% previously due to the influx of refugees, higher commodity prices and deteriorating confidence hurting demand.
For Ukraine, the World Bank report estimates that over half of the country’s businesses are closed, while others are operating at well under normal capacity. The closure of Black Sea shipping from Ukraine has cut off some 90% of the country’s grain exports and half of its total exports.
The World Bank said the war has rendered economic activity impossible in many areas, and is disrupting agricultural planting and harvest operations.
Estimates of infrastructure damage exceeding $100 billion by early March – about two-thirds of Ukraine’s 2019 GDP – are well out of date “as the war has raged on and caused further damage.”
The bank said the 45.1% contraction estimate excludes the impact of physical infrastructure destruction, but said this would scar future economic output, along with the outflow of Ukrainian refugees to other countries.
The World Bank said the magnitude of Ukraine’s contraction is “subject to a high degree of uncertainty” over the war’s duration and intensity.
A downside scenario in the report, reflecting further commodity price shocks and a loss of financial market confidence triggered by an escalation of the war, could result in a 75% contraction in Ukraine’s GDP and a 20% contraction in Russia’s output.
This scenario would lead to a 9% contraction in the World Bank’s Europe and Central Asia region of emerging market and developing economies – more than double the drop in the baseline forecast.
“The Russian invasion is delivering a massive blow to Ukraine’s economy and it has inflicted enormous damage to infrastructure,” Anna Bjerde, the World Bank’s vice president for Europe and Central Asia, said in a statement.
“Ukraine needs massive financial support immediately as it struggles to keep its economy going and the government running to support Ukrainian citizens who are suffering and coping with an extreme situation.”
The World Bank has already marshaled about $923 million in loans and grants for Ukraine, and is preparing a further support package of more than $2 billion.
“Rapid IMF and World Bank assistance has allowed Ukraine fiscal space to pay salaries for civilians, soldiers, doctors, and nurses, while also meeting its external debt obligations,” U.S. Treasury Secretary Janet Yellen, who oversees the U.S. controlling share in the World Bank, told U.S. lawmakers during a hearing last week.