Rocketing inflation and dwindling gas supplies fuelled by Russia’s invasion of Ukraine will hammer growth in the ex-Soviet bloc next year, Europe’s development bank forecast Wednesday.
The European Bank for Reconstruction and Development cut its 2023 growth guidance, with Ukraine facing a much weaker rebound than expected.
The bank’s investment zone is set for growth of three percent next year.
But the EBRD had previously forecast a stronger expansion of 4.7 percent for its region that includes nations ranging from Albania to Poland and Morocco.
Founded in 1991 to help former Soviet bloc countries switch to free-market economies, the EBRD has since extended its reach to include nations in the Middle East and North Africa.
“Negative factors related to high energy prices, the Ukraine war, inflation and the anticipated slowdown in western Europe, make the prospects for next year bleaker,” chief economist Beata Javorcik told AFP in an interview.
The zone is nevertheless expected to expand by 2.3 percent in 2022, upgraded from 1.1 percent on a “temporary” boost from strong post-pandemic consumer spending.
Yet the bank remains mindful that many EBRD nations are “highly” dependent on gas for their energy needs.
“These are very worrying times for the EBRD regions and many advanced economies,” added Javorcik.
“As we head towards winter, the economic cost of Russia’s war against Ukraine is growing clearer with every day that passes.”
Global inflation has surged this year, largely on runaway oil, gas and food prices after Russia launched its assault on neighbouring Ukraine in February.
Inflation for the EBRD’s zone hit 16.5 percent in July, the highest level since 1998.
“Inflation may not have peaked in the EBRD regions as in many countries the increase in producer costs and high natural gas prices have not yet been fully reflected in consumer prices,” noted Javorcik.
The EBRD expects Ukraine’s economy to contract 30 percent this year, unchanged from its prior estimate, before growing by eight percent in 2023.
The bank had in May forecast a much stronger 25-percent rebound for next year.
The London-headquartered bank explained that it had expected Ukraine reconstruction work to be under way.
– Russia sanctions to bite –
The EBRD added that Russia’s sanctions-hit economy would shrink three percent next year, downgraded from zero growth, after contraction of an upwardly revised five percent in 2022.
“In general we believe that sanctions will bite going forward,” added Javorcik.
The lender stressed that its projections were subject to “major downside risk” should the Ukraine war escalate — or Russia slash gas exports further.
If Moscow cuts off all supplies of gas to Europe, then EBRD nations will also encounter major supply-chain problems.
“The effects of the war are becoming visible in the (EBRD) economies,” said Javorcik.
“We are seeing much higher energy prices, increased inflation, and the expected slowdown in western Europe is going to hit exports quite hard.”
Analysts are increasingly predicting a global recession for 2023 as central banks ramp up interest rates to cool decades-high inflation.
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