Russia economy to contract 10%, Ukraine's 20% due to war: EBRD

Russia's invasion of Ukraine has caused "the greatest supply shock" in 50 years, the European development bank said Thursday while predicting how the war will hammer both economies

By AFP

Published: Mar 31, 2022 11:26:02 AM IST

Updated: Mar 31, 2022 12:10:51 PM IST

A resident walks past a burned out building after Ukrainian forces expelled Moscow's troops from the the town of Trostyanets which they had occupied at the beginning of their war with Ukraine, March 30, 2022. (Credit: Thomas Peter / Reuters)

London, United Kingdom: Russia's economy will contract by 10 percent this year and Ukraine's gross domestic product by as much as 20 percent as the war between the two countries causes "the greatest supply shock" for 50 years, the European development bank, EBRD, forecast Thursday.

Before Russia invaded its pro-Western neighbour on February 24, the London-based European Bank for Reconstruction and Development had predicted that Ukrainian GDP would grow by 3.5 percent this year and that the Russian economy would expand by three percent.

The EBRD said it was the first international financial institution to update growth forecasts since the outbreak of the war in Ukraine last month.

The latest prognoses "assume that a ceasefire is brokered within a couple of months, followed soon after by the start of a major reconstruction effort in Ukraine," it said.

Under such a scenario, Ukraine GDP should rebound by 23 percent next year, while sanctions-hit Russia is set for zero growth.

The EBRD was founded in 1991 to help former Soviet bloc countries switch to free-market economies, but has since extended its reach, including to countries in the Middle East and North Africa.

The bank predicted that its investment zone, excluding Belarus and Russia, would grow by 1.7 percent this year compared to an earlier growth forecast of 4.2 percent in November.

Growth is then expected to pick up to five percent in 2023.

"Projections are subject to an exceptionally high degree of uncertainty, including major downside risks should hostilities escalate or should exports of gas or other commodities from Russia become restricted," it cautioned.

The world economy faced "the greatest supply shock since at least the early 1970s", the lender added.

"The bank predicts that the increased cost for commodities such as food, oil, gas and metals will have a profound impact on economies, particularly those in lower income countries," it noted.

"Russia and Ukraine supply a disproportionately high share of commodities, including wheat, corn, fertiliser, titanium and nickel."