Ukraines’ economy to shrink by 20%, Russias’ by 10% in 2022: Report

Ukraine’s economy will shrink by a fifth in 2022, according to the European Bank for Reconstruction and Development, in a situation where a cease-fire is agreed upon in a month or two.

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The economies of Russia and Ukraine will contract by 10% and 20%, respectively, this year as the war between the two countries causes “the greatest supply shock” for 50 years, the EBRD said on Thursday.

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The prediction is susceptible to significant downside risks “should hostilities escalate or should exports of gas or other commodities from Russia become restricted,” the EBRD said in its biannual regional economic update published on Thursday. 

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According to the EBRD, Russia’s invasion of Ukraine has caused the worst supply shock since at least the early 1970s, tangling supply chains, upsetting the energy trade and jeopardizing food exports owing to both nations’ significant agricultural industries.

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“Currently, the war is happening on territories that produce 60% of Ukrainian GDP,” the EBRD said in the report. About 30% of businesses have stopped production, and electricity consumption is estimated at 60% of pre-war levels, it added.

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The forecast anticipates that a cease-fire would be reached within a few months, that reconstruction of the country will begin in 2023, and that the GDP will increase by 23% next year.

Russia’s economy would shrink by 10% this year and remain stagnant in 2023. Russia’s recession might worsen if Europe joins a ban on oil imports or drastically cuts its dependence on Russian natural gas.

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The Institute of International Finance said that Russia is on track to wipe away 15 years of economic gains by the end of 2023 as a result of its invasion of Ukraine, which triggered a slew of sanctions and caused companies to flee the country.

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Russia’s invasion of Ukraine has caused the ruble to fall, disrupting global supply lines and commodity prices, and prompting a major departure of firms from the nation.

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Even after the immediate hit to Russia’s economy, the economy will suffer for years to come from a so-called “brain drain” – the exodus of educated, middle-class Russians with the financial means to leave the country – and from US and EU export controls on technology, including microelectronics, which will stymie Russian technological development, according to the IIF.