EBRD worsens contraction predictions for Ukraine and its entire zone

Smoke rises above a refinery near Lysychans'k in eastern Ukraine after a bombardment on May 9, 2022
Smoke rises above a refinery near Lysychans’k in eastern Ukraine after the bombardment on May 9, 2022 (Yasuyoshi Chiba / AFP)

The European Bank for Reconstruction and Development (EBRD), which hosts this week’s annual meeting, has significantly worsened Ukraine’s economic contraction forecast in the face of Russia’s prolonged aggression.

Currently, a brutal contraction of 30% in the Ukrainian economy is expected this year, instead of the 20% expected in the first March of the Russian offensive.

International organizations are also subject to a series of sanctions and still expect a 10% reduction in the Russian economy due to the cost of the war in Ukraine.

The EBRD has also lowered its overall zone growth forecast from 1.7% in March to 1.1%.

After a pandemic caused the economies of countries covered by European financial institutions to shrink sharply in 2020, the post-covid recovery saw a sharp recovery last year, “the war in Ukraine had a profound impact on the economy” on Tuesday. According to the press release, of the region.

The downward revision of the regional forecast is “mainly due to the stronger than expected contraction of the Ukrainian economy due to the continued war,” EBRD added.

At the World War II Open Air Museum in Kieu on May 9, 2022
At the World War II Open Air Museum in Kieu on May 9, 2022 (Sergei SUPINSKY / AFP)

For Ukraine, the contraction is “probably the worst since World War II,” said Beataja Volchik, the organization’s chief economist, in an interview with AFP.

For Russia, the expected 10% contraction is “serious because it is comparable to what was observed in the Western countries at the height of the Covid pandemic,” she adds.

The institute, which will start its three-day annual meeting in Malakesh on Tuesday, predicts that the region’s economy will recover to 4.7% next year, driven by the hypothesis of reconstruction in Ukraine. This will lead to 25%. Rebound with the country’s gross domestic product.

However, according to the EBRD report, the regional economy is expected to suffer the “inflationary pressure” felt by the global economy as a whole next year.

Founded in 1991 to support the transition of former Soviet countries to a market economy, the organization has since expanded its reach to include countries in the Middle East and North Africa.

Threat to food security

The EBRD emphasizes the risk of a significant downward revision of forecasts “in the event of an intensified conflict or more restricted exports of gas and other raw materials from Russia.”

Anti-tank obstacle in front of rape field in Zaporizhia region, Ukraine, May 5, 2022
May 5, 2022, Tank Countermeasure Obstacles in Front of Rapeseed Fields in Zaporizhia, Ukraine (Dimitar DILKOFF / AFP / Archives)

Organizations have also seen many soaring prices for essential foods such as wheat, corn and soybeans, while raw material and food prices have skyrocketed in recent months and gas prices have reached historic highs in Europe. It states that it threatens food security in the country. Especially in Africa and the Middle East.

This soaring food price has also contributed to inflation, reaching nearly 12% in the region in March, the highest since the end of 2008 in the midst of the financial crisis. Price increases that most vulnerable households, who spend most of their budget on essential costs, should feel first and foremost.

Russia and Ukraine are two major exporters of wheat, corn, rapeseed and sunflower oil. Russia is also the world’s largest supplier of fertilizers and gas.

“Many economies in the EBRD region are also highly dependent on gas in the energy mix,” banks continue, criticizing certain government support measures in the face of rising energy prices.

Beata Javorcik explains to AFP, in particular, that direct subsidies for gasoline and heating are very costly to the finances and give the wrong message during the energy transition.

Rather, it encourages the establishment of financial support to address the cost of living crisis by specifically targeting the most vulnerable households.

The EBRD also states that Russia’s invasion of Ukraine has resulted in the largest migration in Europe since World War II, with “more than 5 million Ukrainians leaving the country” since mid-April.

If this influx of refugees puts pressure on the resources of host countries in the short term, the institute concludes that “in the long term, the aging of the population could stimulate these countries.” ..