Ukrainian GDP will collapse (-45%), but the World Bank sees an even more bleak scenario

The World Bank has just swept away all the already very pessimistic economic forecasts made in the last 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 decline 20%.

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

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

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

Since the start of this war, which began in Russia on February 24, more than four million Ukrainians have fled the country, fleeing to Poland, Romania and Moldova, and the prices of food as well as energy have continued to rise.

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

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

GDP of Eastern Europe would drop by -30.7%

Eastern Europe alone is expected to see its GDP drop by 30.7% against a 1.4% growth 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 depends on natural gas to meet its energy needs.

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

A worse recession than that caused by the Covid pandemic

More generally, the Washington institution announces that it expects GDP contraction of 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 even 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 being prepared, the institute explains that in order to draw up its forecasts, the Bank has speculated that the war will go on “for a few months”.

Ukraine: tensions in the east of the country, where a “great battle” is being prepared.

The even darker scenario envisaged by the World Bank

But it warns of an even grimmer scenario if the conflict gets bogged down.

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

She added:

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

This manager by the World Bank acknowledges that these latest forecasts are subject to “great uncertainty” with one unknown factor, the real impact of the war in the euro area.

For this reason, the institution has therefore also considered a more pessimistic scenario taking into account a stronger impact on the euro area, an escalation of sanctions and a shock to financial confidence.

This is essentially what regulators said a week ago, who have carefully examined the situation 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 the moment, they said, banks’ exposure to Russian risk is generally limited, but the war shouldn’t go on too long.

War in Ukraine does not threaten European banks: European Banking Authority

A worst-case scenario from the 2008 financial crisis

However, in this darker scenario of a protracted war, the World Bank calculated it the region’s GDP would therefore contract by almost 9%far more than the 5% suffered during the global financial crisis of 2009 and more than 2% of the pandemic-induced recession in 2020, recalls the World Bank.

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