By BENJAMIN ORISEMEKE, Abuja –
The economy of Europe and Central Asia is expected to shrink by 4.1 percent this year, compared with the pre-war forecast of 3 percent growth, as the economic shocks from the war compound the ongoing impacts of the COVID-19 pandemic.
In its Economic Update for the region, released Tuesday, the World Bank noted that it would be the second contraction in many years, and twice as large as the pandemic-induced contraction in 2020.
According to the World Bank, Ukraine’s economy is expected to shrink by an estimated 45.1 percent this year, although the second magnitude of the contraction will depend on the duration and intensity of the war. Hit by unprecedented sanctions, Russia’s economy has already plunged into a deep recession with output projected to contract by 11.2 percent in 2022.
World Bank Vice President for the Europe and Central Asia region Anna Bjerde said, “The magnitude of the humanitarian crisis unleashed by the war is staggering. The Russian invasion is delivering a massive blow to Ukraine’s economy and it has inflicted enormous damage to infrastructure,” said
“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 war is also hitting hard the emerging and developing economies of Europe and Central Asia, a region that was already heading for an economic slowdown this year from the ongoing effects of the pandemic. In addition to Russia and Ukraine, Belarus, Kyrgyz Republic, Moldova and Tajikistan are projected to fall into recession this year, while growth projections have been downgraded in all economies due to spillovers from the war, weaker-than-expected growth in the euro area, and commodity, trade and financing shocks.
Russia and Ukraine account for about 40 percent of wheat imports in the region and about 75 percent or more in Central Asia and the South Caucasus. Russia is also a major export destination for many countries, while remittances from Russia are close to 30 percent of GDP in some Central Asian economies (Kyrgyz Republic, Tajikistan).
“The Ukraine war and the pandemic have once again shown that crises can cause widespread economic damage and set back years of per capita income and development gains,”
“Governments in the region should fortify their macroeconomic buffers and credibility of their policies to contain risks and deal with potential fragmentation of trade and investment channels; strengthen their social safety nets to protect the most vulnerable, including the refugees; and not lose focus on improving energy efficiency to ensure a sustainable future,” said Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia.
The war-triggered spike in global oil prices also serves to underscore the need for energy security by boosting energy supply from renewable sources and stepping up the design and implementation of large-scale energy efficiency measures.