Ukraine’s economy in 2022 will decline sharply

In March, the EBRD estimated Ukraine’s economy would shrink by 20% this year. However, the bank recently made a more serious prediction.

“The decline (of Ukraine’s economy) was larger than expected in the context of the protracted conflict“, the EBRD report said.

Russia’s military campaign in Ukraine has stalled world trade in the fields of energy, fertilizers and other agricultural commodities. The closure of cargo ships from Ukraine in the Black Sea has cut about 90% of grain exports and half of the country’s total exports. The war also affected farming and harvesting in many parts of the country.

“In addition to direct damage from conflict, agricultural production is hampered by a lack of fuel, and difficult access to supplies of seeds, fertilizers, and equipment.”, EBRD notes that Ukraine accounts for almost 10% of global wheat exports, 14% for corn and 37% for sunflower oil. The country is expected to be unable to plant or harvest about 20-30% of its farmland.

At the same time, the conflict has disrupted supply chains in many regions of the world, slowing economic growth in Eastern Europe.

The Ukraine crisis also pushed gas prices in Europe to historic highs, fueling inflation across the region.

The forecast is that Russia-Ukraine will establish a ceasefire this year. In this case, Ukraine could start rebuilding the country in 2023, and its economy is expected to grow by 25% next year.

According to EBRD, the Ukraine crisis exposes vulnerabilities in the global supply chain. For example, just two Ukrainian companies account for about 35% of the global supply of pure neon – a key ingredient for the production of semiconductor chips.

The European Bank for Reconstruction and Development added that Russia’s economy is expected to shrink by 10% this year and continue to stagnate in 2023.