The IMF predicts a “deep recession” in Ukraine of up to 35% of GDP this year due to the Russian attack | Economy

Russia’s attacks on Ukraine will lead to the collapse of Ukraine’s economy. The International Monetary Fund predicts a drop in gross domestic product (GDP) of at least 10%, assuming that the war has a quick outcome and Kiev receives foreign economic support for its reconstruction. A report prepared by the institution led by Kristalina Georgieva, which has approved an emergency loan of 1,400 million dollars (1,275 million euros) for the country, warns, however, that “the intensity of the ongoing conflict is causing a widespread destruction to productive capacity and is rapidly worsening the outlook.” In fact, the organization calculates that, taking into account information from other armed conflicts, the collapse of the economy may be between 25% and 35%.

In the early hours of February 24, the invasion of Ukraine led by Russian President Vladimir Putin put an end to the economic recovery that Ukraine was experiencing, which grew by 3.2% last year. Somewhat earlier, the tensions had already been deteriorating the situation, which was reflected in the spreads of the country’s debt. But since then it has suffered “a massive economic and humanitarian blow”, according to the IMF report, with a rapid increase in “loss of life” and “significant destruction of infrastructure” throughout the country. “Ports and airports have been closed, and substantial damage has been inflicted in Mariupol, where 50% of all exports are shipped,” the document states.

The report reflects the rapid deterioration of all the indicators that a war implies: with hundreds of thousands displaced (the United Nations estimates that the figure may reach four million) and Russian troops attacking on several flanks, domestic demand is contracting, the consumption is limited to basic goods and distribution is severely disrupted. The destruction of logistics infrastructures also hinders both imports and exports. Added to all this is a great “uncertainty” about the scope and duration of the war that makes it difficult to outline a minimum economic forecast. But “at least”, the IMF technicians believe that there will be a drop of at least 13.5 percentage points compared to the forecast they had made before the war. That shows a collapse of 10% of the country’s GDP, provided that the conflict does not last too long and international donations flow quickly.

Government action

Reconstruction, according to the report, will be key, since Russia is destroying the country’s productive capacity. The more infrastructure is destroyed and the more citizens are forced to emigrate, the greater the depression, the commercial collapse and the tax revenues. Information on other wars (Iraq, Lebanon, Syria or Yemen) suggest that the drop may be between 25% and 35%. The report highlights, however, that the payment system is still “operational” and the banks are still open and “mostly” liquid, although the distribution of cash has been damaged by the conflict.

The risks, the document concludes, are “extremely high”, so that an increase in the loss of physical and human capital can jeopardize access to basic needs such as water, food and electricity. And the effects would not only be internal. “The conflict could also put pressure on domestic and global food and energy prices, increasing inflation and putting pressure on fiscal and foreign positions,” adds the IMF. The agency considers that, given this scenario, the Government of Ukraine has launched the “appropriate emergency measures to stabilize the markets and the economy.” The immediate priority, indicates the IMF, is to ensure that there is sufficient liquidity to allow the “key” operations of the Administration, maintain access to liquidity for citizens and contain the impact of adverse market conditions.

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