The European Bank for Reconstruction and Development (EBRD) warns that the impact of the war in Ukraine will be felt more and more harshly on the economies of its zone, largely centered on Eastern Europe.
In a report published on Wednesday, the institution thus lowers its growth forecast in 2023 in its regions to 3%, once morest 4.7% anticipated in May.
This revision ‘reflects a reduced supply of gas from Russia (…) and inflationary pressures in the world as in the regions of the EBRD’, notes the latter.
On the other hand, the institution, largely focused on Eastern Europe, raises its forecast for this year to 2.3%, once morest 1.1% forecast in May, as consumers have spent more of their savings from the period of pandemic than anticipated, according to the report.
If this has ‘temporarily boosted consumption despite the fall in real wages – excluding inflation -, this has resulted in a sharp increase in current account deficits in central Europe’, notes the EBRD in its report.
The funding organisation’s chief economist, Beate Javorcik, told AFP that the effects of the war in Ukraine are increasingly being felt on economies.
“We see much higher gas prices, rising inflation, and the expected slowdown in Western Europe will weigh heavily on exports,” she argued.
Gas prices in Europe “are on average 2.5 times their 2021 level” in inflation-adjusted terms, notes the EBRD.
She also warns that ‘skyrocketing costs in energy-intensive sectors, such as aluminium, steel or certain areas of the automotive industry’, not to mention supply chain problems with Germany, will also slow growth in central Europe and in the south-east of the Old Continent.
The EBRD argues that its forecast might be further ‘sharply lowered if hostilities escalate or gas exports from Russia are further reduced’.
Inflation record
Ukraine is set to suffer a massive economic contraction of 30% of its GDP this year, the EBRD predicts, maintaining its anticipation of May, before an expected rebound in growth of 8% next year.
“We believe that the sanctions” which target Russia in reaction to its invasion of Ukraine “will have an impact on the Russian economy in the future”, concludes Ms Javorcik. The international body predicts a contraction of 5% of Russian GDP this year and another 3% next year. Forecasts unchanged since May.
Inflation in the EBRD regions, which includes some countries in the Maghreb or Central Asia, reached 16.5% in July, a record since 1998, at the end of the transition period for the ex-communist economies. of the area, underlines the institution in its report.
While wheat prices are ‘largely back to pre-war levels, oil prices remain high by historical averages’, she continues.
The rise in energy and food prices particularly penalizes the poorest households and represents for them a major part of their expenditure.
Faced with the cost of living crisis, ‘more than two-thirds of EBRD economies have implemented oil subsidies’ similar to those adopted in developed economies.
/ATS
