Business news from Ukraine

Ukraine’s GDP in 2022 will fall by 45.1%, the World Bank predicts, recalling that before the Russian invasion, it expected the Ukrainian economy to grow by 3.2% this year.

According to its Europe and Central Asia Economic Update amid the war unleashed by Russia and its consequences, in 2023 the Ukrainian economy is expected to recover by only 2.1%, which is also worse than previous expectations of 3.5%.

“Russia’s invasion of Ukraine has triggered a catastrophic humanitarian toll and severe economic contraction… The impact on poverty is also likely to be devastating, although it is hard to quantify at this stage. Based on the international poverty line of $5.50 per day, poverty is projected to increase to 19.8% in 2022, up from 1.8% in 2021, with an additional 59% of people being vulnerable to falling into poverty,” the World Bank said in the report.

According to the document, simulations using the most recent macroeconomic projection show that the share of the population with incomes below the actual subsistence minimum (the national poverty line) may reach 70% in 2022, up from 18% in 2021. In the absence of a massive post-war support package, this indicator would still be higher than 60% by 2025, the bank added.

According to the World Bank’s forecasts, private consumption in Ukraine this year will fall by 50%, while public consumption by 10%, and capital investment will drop by 57.5%. Exports of goods and services will be reduced by 80%, imports – by 70%, while the public debt to GDP ratio will increase from 50.7% to 90.7%. The forecast for the consumer price index is 15% with an increase to 19% next year.

World Bank experts expect this year a current account deficit of the balance of payments of 6.8% of GDP and its expansion to 16.8% in 2023, a fiscal deficit (non-military) – 17.5% and 26.5%, respectively.

Even for 2024, the World Bank predicts an acceleration of economic growth to only 5.8% with inflation of 8.4%

“In coming years, a major reconstruction effort is expected to push growth to over 7% by 2025 amid a slow restoration of productive and export capacity and gradual return of refugees. Still, by 2025, GDP will be a third less than its pre-war level in 2021,” the World Bank said.

The World Bank explains the absence of a strong rebound in economic growth in 2022-2023 by saying that the war has destroyed a critical amount of productive infrastructure—including rail, bridges, ports, and roads—rendering economic activity impossible in large swathes of areas. Goods trade has come to a grinding halt, as damaged transit routes prevent goods by land while the loss of access to the Black Sea cuts off half of Ukraine’s exports and 90% of its grain trade. The planting and harvest seasons have been disrupted, the World Bank said.

“The magnitude of the contraction, however, is subject to a high degree of uncertainty related to the duration and intensity of the war. Still, the repercussions are anticipated to reverberate beyond the short-term collapse in domestic demand and exports, as output is scarred by the destruction of productive capacity, damage to arable land, and smaller labor supply – especially if refugees are slow to return or choose to remain permanently outside Ukraine,” the World Bank said.

Learning losses from the pandemic are expected to be amplified by the war given the destruction of schools and disruption to schooling. The Bank, referring to UNICEF data, said that the war had displaced 4.5 million children – more than half of Ukraine’s estimated 7.5 million child population – likely disrupting education, setting back development goals, and eroding long-term potential growth prospects.

“With physical capital and vital assets destroyed and degraded, combined with scarring from the war and pandemic, the recovery will be more difficult without significant reconstruction efforts and capital flows,” the World Bank said.