Ukraine’s economy could shrink by up to 35% in 2022, IMF says | International Monetary Fund (IMF)

Ukraine’s war-torn economy could shrink by as much as 35% this year if Russia’s invasion turns into a protracted conflict, the International Monetary Fund warns.

In an initial assessment, the IMF said loss of life, damage to critical infrastructure, disruption to trade and a refugee exodus would cause gross domestic product to fall by at least 10% in 2021.

However, it stressed that the experiences of other countries affected by recent wars, such as Iraq and Syria, indicated the impact could be much more severe.

The IMF also said the war – which has already caused energy prices to spike – would wreak “devastating” damage on the global economy.

Last week, the IMF announced a $1.4 billion emergency aid package to help the country deal with the mounting financial costs of a war that has resulted in nearly half the banks and central bank shutting down Had trouble delivering cash to branches and ATMs.

“While geopolitical tensions with Russia had already limited Ukraine’s access to markets, the escalation to a Russian invasion of Ukraine and full-blown war on February 24 dramatically changed Ukraine’s prospects,” said an IMF official created report.

“A deep recession and high recovery costs are to be expected against the backdrop of a humanitarian crisis. As the war continues, the situation remains extremely volatile and any forecast is subject to massive uncertainty at this point.”

The report found that Ukraine was facing a “massive” humanitarian shock, with evidence of rapidly increasing loss of life and extensive destruction of infrastructure across the country.

Air and sea ports had been closed and significant damage had been sustained in Mariupol (which handles 50% of total exports) and most of the airports. A large number of roads and bridges had been destroyed, further crippling transportation and logistics.

The IMF admitted there was “massive uncertainty” about the economic impact of the war, but said instead of forecasting 3.5% growth this year, it now expects a deep recession. The forecast of a 10% drop in GDP was based on an imminent end to fighting and financial help from donor organizations.

“However, the intensity of the ongoing conflict is causing widespread destruction of Ukraine’s productive capacity and rapidly worsening prospects. The increasing loss of physical capital stock and mass migration would lead to a much more pronounced contraction in output, a collapse in trade flows, a further reduced tax collection capacity, and a greater deterioration in budgetary and external trade positions.

“Data on war-time real GDP contractions (Iraq, Lebanon, Syria, Yemen) suggest that the annual output contraction may ultimately be much larger, in the 25-35% range.”

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The previous conflict between Ukraine and Russia, which involved Moscow’s annexation of Crimea, caused Ukraine’s economy to contract by 6.6% in 2014 and a further 10% in 2015. Downside risks are “extraordinarily” high, according to the IMF, and the longer the war drags on, the more likely Ukraine will suffer the kind of losses experienced by other conflict-affected countries.

The IMF estimates that Russia will also experience a deep recession and will provide an estimate of the contraction in output in its World Economic Outlook next month.

Vladyslav Rashkovan, IMF Deputy Executive Director for Ukraine, said: “The prolongation of Russian aggression against Ukraine, in addition to the humanitarian and economic losses, will also lead to significant spillovers around the world: worsening food security, energy boost and raw materials process, rising inflationary pressures , supply chain disruption, rising social spending for refugees and rising poverty. The global economic damage from this war will be devastating.”