KYIV, April 11 – Ukraine's economy will contract 45.1% on the year in 2022 due to Russian invasion, reversing an earlier forecast of 3.2% growth, the World Bank said in its Europe and Central Asia Economic Update.

The economy is likely to recover 2.1% on the year in 2023, which is worse 3.5% that has been previously expected.

"Russia's invasion of Ukraine has triggered a catastrophic humanitarian toll and severe economic contraction… The impact on poverty is also likely to be devastating, although it is hard to quantify at this stage. Based on the international poverty line of $5.50 per day, poverty is projected to increase to 19.8% in 2022, up from 1.8% in 2021, with an additional 59% of people being vulnerable to falling into poverty," the World Bank said in the report.

According to the document, simulations using the most recent macroeconomic projection show that the share of the population with incomes below the actual subsistence minimum (the national poverty line) may reach 70% in 2022, up from 18% in 2021. In the absence of a massive post-war support package, this indicator would still be higher than 60% by 2025, the bank added.

According to the World Bank's forecasts, private consumption in Ukraine this year will fall by 50%, while public consumption by 10%, and capital investment will drop by 57.5%. Exports of goods and services will be reduced by 80%, imports – by 70%, while the public debt to GDP ratio will increase from 50.7% to 90.7%. The forecast for the consumer price index is 15% with an increase to 19% next year.

World Bank experts expect this year a current account deficit of the balance of payments of 6.8% of GDP and its expansion to 16.8% in 2023, a fiscal deficit (non-military) - 17.5% and 26.5%, respectively.

Even for 2024, the World Bank predicts an acceleration of economic growth to only 5.8% with inflation of 8.4%

"In coming years, a major reconstruction effort is expected to push growth to over 7% by 2025 amid a slow restoration of productive and export capacity and gradual return of refugees. Still, by 2025, GDP will be a third less than its pre-war level in 2021," the World Bank said.

The World Bank explains the absence of a strong rebound in economic growth in 2022-2023 by saying that the war has destroyed a critical amount of productive infrastructure—including rail, bridges, ports, and roads—rendering economic activity impossible in large swathes of areas, the World Bank said. (om/ez)