LONDON (AP) – The World Bank says Ukraine’s economy will shrink by 45.1% this year because Russia’s invasion has shut down half of the country’s businesses, choked off imports and exports and damaged a vast amount of critical infrastructure.
Meanwhile, unprecedented financial and export sanctions imposed by Western allies in response to the war are plunging Russia into a deep recession and sapping more than a tenth of its economic growth, the World Bank said in a report on Sunday.
The war will wreak twice the economic damage of the COVID-19 pandemic across Europe and Central Asia, the Washington-based lender said in its War in the Region economic report. In addition to Ukraine, the focus is on Central and Eastern Europe, the former Soviet republics, the Balkan countries and Turkey.
“The scale of the humanitarian crisis triggered by the war is staggering,” said Anna Bjerde, World Bank vice president for Europe and Central Asia. “The Russian invasion has dealt a severe blow to the Ukrainian economy and has caused enormous damage to infrastructure.”
The report states that economic activities in “large areas” in Ukraine are impossible because infrastructure such as roads, bridges, ports and railway tracks have been destroyed.
Ukraine plays an important role as a global supplier of agricultural exports such as wheat, but that is now in question because planting and harvesting have been disrupted by the war, the report said. The war cut off access to the Black Sea, a key export route including 90% of Ukraine’s grain shipments, it said.
“The war has devastated human lives and caused economic destruction in both countries and will result in significant economic losses in the Europe and Central Asia region and the rest of the world,” the report said.
Belarus, Kyrgyzstan, Moldova and Tajikistan are also expected to slide into recession this year, while economic growth forecasts for the region’s other economies have been lowered due to the domino effects of the war.
The World Bank said the humanitarian catastrophe was the war’s biggest initial shockwave and will likely be its most enduring legacy, as the wave of refugees from Ukraine “is likely to eclipse previous crises”.
More than 4 million people have fled Ukraine, more than half of them to Poland and others to countries like Moldova, Romania and Hungary. Another 6.5 million were internally distributed. Those numbers are expected to swell as the war drags on, the World Bank said.
The report issued a stark warning that “the war will increase poverty in the region due to recession and food price inflation.”
Beyond the humanitarian crisis, the lender said, “The war is also dealing a significant blow to the global economy through multiple channels.”
The war and sanctions have disrupted global trade routes and pushed up shipping and insurance costs, “increasing the strain on global value chains,” the report said, noting that among the affected industries were food, automotive, construction, petrochemical and transportation industries.