The World Bank predicts that the Ukrainian economy will shrink by almost half this year | World Bank

Ukraine’s economy is on track to shrink by almost half this year as the Russian invasion and the fallout from a “deep humanitarian crisis” take their toll, the World Bank said.

With a blockade of Black Sea ports in southern Ukraine and industrial devastation in the east, the war-torn country’s GDP is expected to contract by around 45% in 2022.

The Washington-based development agency said Russia would also fall into recession and many countries around Ukraine would face severe hardships, with some being urged to seek outside help from international organizations to prevent them from colliding with existing ones defaulted on debt.

“The war is having a devastating impact on human life and causing economic destruction in both countries and will lead to significant economic losses in the Europe and Central Asia region and the rest of the world,” the World Bank said in its forecast released on Sunday.

The bank and the International Monetary Fund (IMF) will host finance ministers and central bank governors for their annual spring meetings this week.

World Bank President David Malpass and IMF Chair Kristalina Georgieva are expected to say they plan to offer additional financial support to the invasion-hit countries, many of which are suffering from rising food costs.

Last month Georgieva said the war was unlikely to trigger a global financial crisis but warned of a severe recession in many countries close to the conflict.

The bank said the second major shock in two years after the pandemic would result in a 4.1% contraction in economic output across the region – twice the depth of the 2020 recession caused by the Covid-19 crisis.

The World Bank’s regional data for Europe and Central Asia range from Ireland in the west to the Russian Federation in the east, but the report focused on emerging and developing countries in central and eastern Europe, the Balkans, Turkey and the former Soviet republics.

It was said the effects of the war would hit many of the former Soviet republics hardest, and many would be forced to seek further loans from the World Bank and IMF to remain solvent.

Lending to Uzbekistan, Tajikistan and the Kyrgyz Republic has already increased during the pandemic, the bank said, although it highlighted Tajikistan and the Kyrgyz Republic as most vulnerable and in need of further financial support packages.

The economy of the Russian Federation is expected to contract by 11.2% this year, while production in Eastern European countries – including Moldova, Belarus and Ukraine – is expected to fall by 30.7%.

Ukraine’s economy, which is heavily dependent on agriculture, could suffer further if access to the Black Sea is cut off by Russian forces, the report said.

Ukrainian ports have already suffered a traffic drop of more than 75%, and the capture of Odessa could push that figure even higher.

Sanctions mean the number of ships arriving at Russian ports has fallen by almost half since the invasion began, causing a domino effect on neighboring countries dependent on Russian and Ukrainian exports. A drop in remittances – cash sent home by expatriate workers – has also hit the entire region.

“The effects of the war are being felt through the region’s strong trade, financial and migratory links, causing significant economic damage to neighboring countries,” the World Bank report said.

A continuation of the war would likely force the World Bank to revise its forecasts and predict even deeper falls in GDP.

A downside scenario could include an additional 3 percentage point decline across the euro area in 2022 “reflecting the impact of commodity price shocks from the escalation of the war. This in turn triggers additional sanctions and reduces Russian exports to the eurozone.

“The downside scenario also assumes a shock to financial confidence, a 20% drop in Russia’s GDP and a 75% drop in Ukraine’s GDP.”

The Turkish economy, which is burdened by high inflation and rising unemployment, is expected to grow by 1.4% this year.