KIEV, Oct. 2 - Ukraine's military conflict with pro-Russian separatists in the industrial east will force the Kiev government to shelve hopes of resuming economic growth until 2016, the World Bank said on Thursday.

The international lender said Ukraine's economy was likely to shrink by 8% this year and contract further in 2015 because of the effect of the war in the east, the center of much of its steel, chemicals and coal output.

The World Bank had previously expected Ukraine's gross domestic product would contract by 5% this year and then grow 2.5% next year. It now anticipates the economy will contract by 1% in 2015.

"Disruption in economic activity in the east has resulted in a sharper GDP decline. We project that GDP will be an 8% decline in 2014," Qimiao Fan, the World Bank's chief representative for Ukraine, told reporters, Reuters reported.

A ceasefire between Ukrainian government forces and the pro-Moscow rebels took effect on Sept. 5 but the truce has been shaky, prone to violations. Ten people were killed by a burst of shelling in Donetsk on Wednesday.

The bank's forecast was a further downbeat assessment for the economy because of the conflict. It has hit production of key industrial sectors such as steel and energy in the Donetsk and Luhansk regions, hardest hit by fighting in which about 3,500 people have been killed, according to U.N. estimates.

"The share of these two regions in GDP is about 16%," Fan said. Donetsk and Luhansk accounted for about a quarter of Ukrainian industrial output, 7% of the agricultural sector and 27 percent of exports, he said.

The government itself forecasts a 6% decline in GDP in 2014, but a growth of between 0.3 and 2% in 2015.

The central bank has said the economy would shrink by as much as 10% this year, while the International Monetary Fund has predicted a 6.5% contraction.

Ukraine’s GDP will continue to decline in the first half of the next year as a result of war destruction of infrastructure, a World Bank economist, Anastasia Golovach, said at the same news conference.

She said Ukraine’s economy might start to recover in the second half of next year if the situation in the east did not worsen and the government continued to implement macroeconomic measures agreed with the IMF under a $17-billion stand-by program approved in April.

These measures include a tough fiscal policy and a flexible exchange rate. The government has significantly cut budget expenditure and let the Ukrainian hryvnia float, though the currency has lost about 40% of its value against the dollar since the start of the year.

"The hryvnia devaluation ought to make a positive impact on the exports. We see an increase in exports as the key factor of resumed economic growth in the second half of next year," Golovach said.

But structural overhauls and other reforms were needed in order to see sustainable growth at 3.5% in 2016, she said.

"If the government carries out structural reforms and it improves the investment climate we will see internal and external sources of investments and that will be the engine of growth in 2016," Golovach said.

Prime Minister Arseny Yatseniuk said at a meeting with foreign investors on Thursday that the implementation of the IMF program was the government's priority. (rt/ez)