World Bank downgrades Ukraine's economic growth forecast for next two years

This is stated in the updated Economic Outlook for the region by the World Bank.

“Economic activity in the Europe and Central Asia region is likely to remain subdued this year due to the ongoing fallout from Russia’s invasion of Ukraine, persistent high inflation and tighter financial conditions. Regional output is now expected to grow by 1.4% in 2023, substantially better than the previously anticipated 0.1%. The positive, though deeply depressed, economic activity in 2023 reflects a softer contraction of Russia’s economy and an improvement in Ukraine’s outlook. Regional growth is expected to increase to an average 2.7% over 2024-25 as inflation eases, domestic demand recovers, and the external environment improves,” the World Bank reported. 

The sharp rise in consumer prices, especially for food and energy, led to an average annual inflation rate in emerging markets and developing countries in Europe and Central Asia of 15.9% by the end of 2022, the highest in the last 20 years and the highest among all developing regions of the world, the review says.

The World Bank emphasized that the outlook remains extremely uncertain.

“Growth in 2023 may be weaker if the war caused by Russia’s invasion of Ukraine escalates further, food and energy prices continue to increase, interest rate hikes accelerate globally or in the region, or there is a sudden reversal of capital flows to the region. There could be spillovers to growth from the current banking developments in some advanced economies,” the World Bank added. 

The bank predicts that Ukraine's economy will grow by 0.5% this year after a staggering 29.2% drop in 2022, when Russia invaded the country.

“While the economic toll suffered by Ukraine as a result of the invasion is enormous, the reopening of Ukraine’s Black Sea ports and resumption of grain trade, as well as substantial donor support, are helping support economic activity this year. 

According to recent World Bank estimates, the cost of reconstruction and recovery in Ukraine has now grown to $411 billion, which is more than 2 times the size of Ukraine’s pre-war economy in 2021,” the World Bank noted. 

At the same time, Turkey suffered two devastating earthquakes on February 6, 2023, which, according to World Bank estimates, resulted in direct losses of about USD 34.2 billion, or 4% of the country's GDP in 2021.

The actual costs of meeting the full range of recovery and reconstruction needs could be twice as high as direct losses. Taking into account the impact of the recent earthquakes, growth is projected at 3.2% in 2023, and rising to an average of 4.2% in 2024-25, thanks to government support for households and investment amid ongoing reconstruction efforts, the review says.

Earlier, the European Bank for Reconstruction and Development significantly downgraded its forecast for Ukraine's GDP growth in 2023 from 8%, as projected in September 2022, to 1%.

According to the January forecast, the National Bank of Ukraine expects real GDP to grow by 0.3% this year, a downgrade that was made in part due to the effects of Russian attacks on energy infrastructure.

• As of the end of the year, the World Bank had provided almost USD 18 billion in emergency assistance to Ukraine.