Russia’s invasion will cost Ukraine’s economy as much as half its economic output this year, according to projections from the Vienna Institute for International Economic Studies.

The think-tank’s spring outlook, published on Wednesday, shows Russia is also likely to suffer a deep recession as a result of western sanctions, while the rest of the central and eastern European economy is at risk from an oil and gas embargo.

Ukraine stood to lose 38 per cent of its gross domestic product this year even if a ceasefire was agreed in the coming months, the report said. “Even with a political solution, a strong recovery is unlikely to get under way until 2024, since private investors will probably be slow to return to the country,” said Vasily Astrov, a senior economist at the institute.

Should fighting continue, the hit to output would be as much as 45 per cent.

Ukraine’s budget deficit could run to a quarter of GDP, as eastern regions — responsible for more than half of the country’s output, more than 40 per cent of its industrial production and a third of its agricultural production — have been severely hit by the conflict. Kristalina Georgieva, managing director of the IMF, warned last week that Ukraine would need $5bn per month for the next three months to plug the funding gaps left by the conflict.

Exports have suffered greatly as Black Sea ports, which have handled half of all cargo, are largely inoperable. Unemployment has also surged.

Russia’s economy will fare better, shrinking by about 9 per cent without an energy embargo but sinking by as much as 15 per cent if oil and gas exports are disrupted, the report says.

While governments further west will be better able to manage the impact of the war, parts of the economy such as the automotive sector will suffer from painful supply and market disruptions. An energy embargo would, however, precipitate deeper output losses across the region.

According to estimates compiled by the institute based on a more negative geopolitical scenario, a ban would push most of eastern Europe into another recession just after the region recovered rapidly from the effects of the coronavirus pandemic.

Hungary is acutely exposed to an embargo, with its economy likely to sink more sharply than its neighbours should a ban come into force. Freshly re-elected premier Viktor Orban is among the staunchest opponents of sanctions.

Another country at risk from an energy ban is Serbia, with growth expected to be wiped out this year if an energy embargo were introduced. President Aleksandar Vucic rejects any sanctions on Russia, he told the Financial Times, saying he needed to keep the lights on.

The least-exposed country in the region is Slovenia, whose economy is deeply intertwined with those of Germany, Austria and Italy — although even Ljubljana would see growth slow in the event of an energy embargo.

Inflation, already at multiyear highs in many countries, will become especially severe if Russian energy imports are banned. “If there is an energy embargo against Russia, the inflation rate will be in double digits in almost all countries,” said Astrov, who was the lead author of the institute’s spring forecast. Turkey’s inflation rate is expected to rise to 55 per cent even without an energy embargo, and by 67 per cent if an embargo is introduced.

Although taking care of the millions of Ukrainian refugees could cost the continent as much as €40bn, many could find work soon and ease persistent labour shortages in the region, offering a silver lining to the generally bleak economic outlook.

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