The entire region is suffering the economic consequences of this war which, started on February 24, caused the flight of more than four million Ukrainians to Poland, Romania and Moldova and sent grain and energy prices skyrocketing.
The Bank expects a 4.1% contraction of GDP this year for all emerging and developing countries in Europe and Central Asia, while before the war it expected growth of 3%. This is also much worse than the pandemic-induced recession in 2020 (-1.9%). And he warned of an even bleaker scenario if the conflict bogs down. Only Eastern Europe should see its GDP collapse by 30.7% against the 1.4% growth expected before the invasion.
“The results of our analysis are very grim,” said Anna Bjerde, World Bank vice president in charge of this region during a conference call. “This is the second major shock to hit the regional economy in two years and it comes at a very precarious time as many economies were still struggling to recover from the pandemic,” she also noted.
As for Eastern Europe, it is also subject to the sanctions imposed on Belarus for its role in the war.
Moldova, collateral victim
The authors of the report note that Moldova is likely to be one of the countries most affected by the conflict, not only because of its geographic proximity to the war, but also because of its inherent vulnerabilities as a small economy closely linked to the two countries, Ukraine. and Russia
Furthermore, this part of Europe relies on natural gas to meet its energy needs.
However, the bleaker outlook is for Ukraine, as government tax revenues have shrunk, businesses have closed or are only partially operational, and trade in goods is severely affected. Grain exports have become impossible “in large areas of the country due to severe damage to infrastructure”, noted, for example, Anna Bjerde.
Another reason for concern, highlights the development institution, is the increase in poverty. The share of the population living on $5.50 a day is expected to rise from 1.8% in 2021 to 19.8% this year, according to World Bank calculations. In the development of all its forecasts, the Bank has assumed that the war will continue “for a few more months”.
But he acknowledges that these are subject to “great uncertainty” with one unknown, the real impact of the war in the euro zone. For this reason, the institution has also considered a more pessimistic scenario, taking into account a greater impact on the euro zone, an escalation of sanctions and a shock to financial confidence.