The World Bank issued its forecast on growth in Europe and Central Asia (ECA) countries and Ukraine’s growth is anticipated to rise from 3.2 percent in 2024 to an average of 5.8 percent a year in 2025–26. 

The forecast’s key assumption is that active hostilities continue throughout 2024 and subsequently moderate – which may be a signal international financial institutions are starting to accept the war in Ukraine will be a prolonged one. 

Ukraine’s recovery will depend on the evolution of Russia’s invasion and is expected to be supported by an increase in exports and reconstruction investments. 

The World Bank estimated reconstruction costs to be at $486 billion over the next decade, approximately 2.8 times nominal GDP in 2023, and a significant increase from previous estimates. 

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More than 6.4 million people have fled the country.

“Loss of jobs, incomes and assets, as well as high inflation, have reversed 15 years of poverty reduction,” the authors of the forecast stated. 

Meanwhile, Russia’s growth raised to 3.6 percent in 2023—a 1 percentage point upward revision from January’s estimate. 

The contributions to such results are: stronger-than-expected private demand, supported by subsidized mortgages, fiscal measures, a tight labor market, increased military expenditures, and oil exports.

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After cuts in early 2024, oil production hovered around 9.2 million barrels per day (mb/d) in the second quarter, merely down by 0.4 million barrels per day (mb/d) from 2023. 

Russia’s economy will slow down more as growth is forecast to decelerate to 2.9

percent in 2024, 1.4 percent in 2025, and 1.1 percent in 2026, near its potential rate. Private demand will be tempered by tightening of macroprudential measures and the scaling back of the provision of subsidized mortgages.

Military production is a key contributor to the sustainable Russian economy, as well as the strengthening of trade linkages with China. 

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Russia, Ukraine and Turkey became key countries to reflect the slowdown of Europe and Central Asia economies in 2024, the World Bank states. 

“Growth in ECA is projected to soften to 3.0 percent this year and to 2.9 percent in 2025,” the report said. The GDP will decelerate gradually to 3 percent in 2024, 2.9 percent in 2025, and 2.8 percent in 2026.

The IFO hopes the growth in the region will accelerate as inflation eases, monetary policy rates are cut, and the growth of exports, particularly to the euro area, strengthens. “The primary growth drivers in most countries are expected to be private consumption, investment, and a recovery in exports, as activity in the euro area firms, according to the report. 

Russia’s invasion of Ukraine and conflict in the Middle East will, however, remain the downside risk to the growth outlook and shape the regional outlook in the future. 

The institution remains calm about the inflation trend, stating market-based expectations are consistent with inflation close to targets in most cases by 2025 – though now it is still above official targets in about half of ECA countries.

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“Despite the need for fiscal consolidation to ensure sustainability, prospects for significant fiscal adjustments in the region appear to be limited, amid many upcoming elections”, the report concludes. 

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