Ukraine’s Economy to Shrink 30% This Year Due to War, EBRD Says

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Ukraine’s economy will plunge by almost a third in 2022, more than previously expected, in a scenario where the war ends this year, the European Bank for Reconstruction and Development said.

The expected downturn is deeper than the 20% contraction the EBRD estimated in March, due to a “larger-than-previously-expected contraction in Ukraine as the war drags on,” it said in its report.

Russia’s invasion has upended trade in energy, agricultural commodities and fertilizers and disrupted supply chains, resulting in slower growth across eastern Europe. Gas prices in Europe have risen to historic highs, fueling inflation across the region and putting manufacturers at a disadvantage compared with U.S.-based companies where gas is as much as four times cheaper, the EBRD said.

“Aside from direct war damage, agricultural production is hampered by lack of fuel, access to seeds, fertilizer and equipment,” the bank said in its report. Ukraine, which accounts for almost 10% of global wheat exports, 14% for corn and 37% of sunflower oil, is not expected to be able to plant or harvest up to 20%-30% of its agricultural land.

The forecasts assume that a cease-fire will be negotiated this year and reconstruction of the country can begin in 2023, with the economy projected to grow 25% next year.

The war has also revealed vulnerabilities in global supply chains, according to the EBRD. Two Ukrainian companies account for about 35% of the global supply of purified neon, a key component for the manufacture of semiconductor chips.

Russia’s economy is expected to shrink 10% this year and stagnate in 2023, according to the EBRD.

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