The ongoing Russian invasion in Ukraine continues to inflict substantial economic and social losses due to extensive damages to productive assets and infrastructure, limited market access, and labor force dislocations. Ukraine’s GDP is expected to contract by 35 percent in 2022 if the status quo continues until the end of the year without additional economic shocks.
Ukraine’s needs for recovery and reconstruction are massive—and growing with each additional day of conflict. The international community’s financial support to Ukraine has been essential to making sure that the Ukrainian people continue to receive basic services. But the scope of the country’s needs requires continued commitment—so doctors and nurses, teachers, and other public servants get paid.
The World Bank, the European Union, and the Ukrainian government released a Rapid Damage and Needs Assessment that estimated Ukraine’s recovery and reconstruction needs at $349 billion (as of June 1, 2022). That amount will become even larger as the war goes on.
Ukraine’s basic non-military budget financing needs—dominated by essential social services—are well over $3 billion a month. Even more is needed to repair roads, bridges, homes, schools, energy infrastructure, and clinics. And, in particular, as winter sets in, urgent support is needed for energy supplies and winterization for homes.
Since the war began, the World Bank Group has mobilized $13 billion in emergency financing, including grants, guarantees, and linked parallel financing from the US, the UK, European countries, and Japan. Around $11 billion has already been disbursed. Our Public Expenditures for Administrative Capacity Endurance in Ukraine, or PEACE, project – an initiative funded by IBRD and IDA financing, donor grants, and donor guarantees – covers critical healthcare services, social payments and pensions.
The poverty and social impacts of the war will be massive. Under the baseline scenario, the population share with income below the national poverty line may reach nearly 60 percent in 2022, up from 18 percent in 2021. Based on the global line of US$6.85 a day (2017PPP), poverty is projected to increase from 5.5 percent in 2021 to 25 percent in 2022, with high downside risks if the war and energy security situations worsen.
Even though the active combat is currently localized, the duration of the war is uncertain, and downside risks are high. Our status quo scenario extrapolates estimated economic activity in 3Q22 into the medium term. Thus, assuming the military and economic situation does not change substantially, GDP is expected to contract 35 percent in 2022 with a gradual rebound of 3-4 percent in the medium term. This scenario does not include any potential upside effects of a large reconstruction activity as well as possible downside risks related to a deterioration of the security situation and/or energy shortage during the winter season. Inflation is expected to accelerate to 30 percent by the year-end, and real wages to drop by 10 percent YoY.
The current account is expected to turn negative in 2022 at 0.5 percent of GDP despite large grants accounted as a secondary income. Exports are estimated to decline around 30 percent YoY in 2022 in nominal terms and around 60 percent in real terms with tepid recovery in the medium term. Imports are to recover much faster than exports as restrictions on imports have been lifted since July, while there is a need to purchase gas and other energy resources. In this status quo scenario, the CAD will broaden gradually in the medium term due to an acceleration of imports and only a modest recovery of exports.
Learn More: Regional Economic Update Fall 2022
Last Updated: Oct 21, 2022