The World Bank said on Tuesday that countries in eastern Europe and Central Asia will return to weak growth in 2023, but warned that a cut-off of Russian energy to the European Union would tip them into recession next year.
In updated economic forecasts, the World Bank said collective GDP in its Europe and Central Asia region was now expected to contract 0.2 per cent in 2022 and grow by 0.3 per cent in 2023 due to spillover effects from Russia's invasion of Ukraine, reports Reuters.
The 2022 forecast is a marked improvement over the World Bank's June forecast of a 2.9 per cent per cent GDP contraction for the region that includes Ukraine, Poland, Russia, Turkey and surrounding countries. It reflects better-than-expected resilience and growth in some of the region's largest economies, along with extensions of pandemic-era stimulus programs in some countries.
The bank said it now expected Ukraine's economy to shrink 35 per cent in 2022, an improvement over the 45 per cent contraction forecast earlier this year, but Ukraine's economy is "scarred" by destruction to productive capacity, damage to agricultural land and reduced labour supply with the displacement of 14 million people.
"Ukraine continues to need enormous financial support as the war needlessly rages on as well as for recovery and reconstruction projects that could be quickly initiated," Anna Bjerde, World Bank Vice President for Europe and Central Asia, said in a statement.
According to recent estimates by the bank, Ukraine's recovery and reconstruction needs across social, productive, and infrastructure sectors total at least $349 billion - more than 1.5 times the size of its GDP in 2021.
The World Bank said Russia's economy was now forecast to contract by 4.5 per cent in 2022, compared with an 8.9 per cent contraction estimated in June. It said Russia's economy is forecast to shrink by 3.6 per cent in 2023.
Turkey's economy is expected to grow by 4.7 per cent in 2022, compared to 2.3 per cent forecast in June, with 2023 growth now forecast at 2.7 per cent
The bank said the outlook for its Europe and Central Asia region, is subject to "considerable uncertainty" with a prolonged, or intensified war causing greater physical and environmental damage and fragmentation of trade and investment.
"The risk of financial stress also remains elevated, given high debt levels and inflation," the World Bank said.
In a separate note on the impact of the global energy crisis, the World Bank said an extended cutoff of energy supplies to the EU could trigger a recession for the European and Central Asian countries, with collective output shrinking by 1.2 per cent.
The impact will be greater on countries more dependent on Russian natural gas, and less on countries with access to alternate gas supplies or more domestic energy production.
The regional grouping includes Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kosovo, Kyrgyzstan, Moldova, Montenegro, North Macedonia, Poland, Romania, Russia, Serbia, Tajikistan, Turkey, Turkmenistan, Ukraine and Uzbekistan.