Ukraine’s economy is predicted to shrink 30 percent this year

Ukraine’s economy will shrink 30% this year, the European Bank for Reconstruction and Development forecast Tuesday, as the war with Russia is expected to have an even more devastating toll on the country than previously predicted.

The bank, which invests in projects across 40 countries in Europe and Central Asia, lowered its forecast from just two months ago, when it predicted that Ukraine’s economy would contract 20%.

The war has “put Ukraine’s economy under enormous stress, with the heavy devastation of infrastructure and production capacities,” the bank said in an economic update.

Already, it is estimated that 30% to 50% of Ukrainian businesses have shut down their operations, 10% of the population has fled the country, and another 15% has been displaced within the country, the bank said. Last month the country’s inflation rate reached nearly 16%, Ukraine’s central bank estimated.

Although Ukraine’s economy grew 3.4% last year, the war has brought that recovery to “an abrupt halt,” the development bank said. Depending on how long the war lasts, next year a huge reconstruction effort and the return of refugees could help the country’s economy grow significantly, the bank added.

Russia’s economy is forecast to contract 10% this year and be stagnant next year. The outlook will remain bleak without a peace agreement that leads to Western countries relaxing sanctions against Russia, the bank said. The long-term potential of Russia’s economy will be significantly hampered, it added, as highly trained and educated workers leave and as the country cuts itself off from the rest of the world.

The war is weighing on the entire region that the bank works in as energy and food prices rise, stoking inflation. It predicted growth in the region to be 1.1% this year, down from a forecast of 1.7% in March.

The forecasts could worsen if the war escalates or if exports of natural gas or other commodities from Russia become even more restricted, the bank said.

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