LONDON – The World Bank says Ukraine’s economy will shrink by 45.1% this year due to the Russian invasion, which shut down half of the country’s businesses, stifled imports and exports and damaged a large amount of essential infrastructure.
Unprecedented financial and export sanctions imposed by Western allies in response to the war are plunging Russia into a deep recession, cutting off more than a tenth of its economic growth, the World Bank said in a report on Sunday.
The war is expected to inflict twice as much economic damage across Europe and Central Asia as the COVID-19 pandemic, the Washington-based lender said in its “War in the Region” economic report. Besides Ukraine, he focuses on Central and Eastern Europe, the former Soviet republics, the Balkan countries and Turkey.
“The scale of the humanitarian crisis triggered by the war is staggering,” said Anna Bjerde, World Bank Vice President for Europe and Central Asia. “The Russian invasion is a heavy blow to the Ukrainian economy and has inflicted enormous damage to infrastructure.”
The report says economic activity is impossible in “large swathes of areas” in Ukraine as infrastructure such as roads, bridges, ports and railways have been destroyed.
Ukraine plays a major role as a global supplier of agricultural exports like wheat, but that is being questioned now as plantings and harvests have been disrupted by the war, the report said. The war has cut off access to the Black Sea, a key route for exports, including 90% of Ukraine’s grain shipments, he said.
“The war is having a devastating impact on human life and causing economic destruction in both countries, and will cause significant economic losses in the Europe and Central Asia region and the rest of the world,” the report said.
Belarus, Kyrgyzstan, Moldova and Tajikistan are also expected to slide into recession this year, while economic growth projections have been reduced for other economies in the region due to the knock-on effects of war.
The World Bank said the humanitarian catastrophe is the biggest initial shock wave of the war and will likely be its most lasting legacy, as the wave of refugees fleeing Ukraine is “expected to eclipse previous crises”.
More than 4 million people have fled Ukraine, more than half to Poland and others to countries such as Moldova, Romania and Hungary. A further 6.5 million people have been internally displaced. Those numbers are expected to rise as the war drags on, the World Bank said.
The report issued a stern warning that “the war will increase poverty in the region due to recession and food price inflation”.
Beyond the humanitarian crisis, the lender said “the war is also dealing a severe blow to the global economy through multiple channels.”
War and sanctions have scrambled global trade routes and driven up shipping and insurance costs, “amplifying strains on global value chains,” the report said, noting that industries affected include food, automotive, construction, petrochemicals and transportation.
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