The Russian Federation’s war with Ukraine has triggered a catastrophic humanitarian crisis and threatened the stability of geopolitical relations, says a report released by the World Bank (WB) on April 10.

Europe and Central Asia Economic Update, Spring 2022: War in the Region, in particular, notes that the Europe and Central Asia (ECA) region's economy is now forecast to shrink by 4.1 percent this year, compared with the pre-war forecast of 3 percent growth, as the economic shocks from the war compound the ongoing impacts of the COVID-19 pandemic.  

The World Bank expects the Ukrainian economy to shrink by 45.1 per cent this year as a result of the Russian military operation, while Russia will see its economy contract by 11.2 per cent in the same period.

Moreover, the war has added to mounting concerns of a sharp global growth slowdown.  The economic impact of the conflict has reverberated through multiple global channels, including commodity and financial markets, trade and migration links, and confidence.  Neighboring countries in the Europe and Central Asia region are likely to suffer considerable economic damage because of their strong trade, financial, and migration links with Ukraine and Russia, according to the report.

In addition to Russia and Ukraine, Belarus, Kyrgyzstan, Moldova and Tajikistan are all projected to fall into recession this year due to spillovers from the conflict, weaker-than-expected growth in the euro area and trade shocks.

Russia and Ukraine account for about 40 percent of wheat imports in the region and about 75 percent or more in Central Asia and the South Caucasus.  Russia is also a major export destination for many countries, while remittances from Russia are close to 30 percent of GDP in some Central Asian economies (Tajikistan, Kyrgyzstan).

The Ukraine war and the pandemic have reportedly once again shown that crises can cause widespread economic damage and set back years of per capita income and development gains.

“Governments in the region should fortify their macroeconomic buffers and credibility of their policies to contain risks and deal with potential fragmentation of trade and investment channels; strengthen their social safety nets to protect the most vulnerable, including the refugees; and not lose focus on improving energy efficiency to ensure a sustainable future,” Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia said.