Szu Ping Chan
World Bank slashes its 2015 Ukrainian growth forecast to -7.5pc as economy deteriorates
Ukraine’s ongoing conflict with Russia has left the country facing years of recession as the country struggles to break ties with Moscow and implement structural reforms, the World Bank has warned.
The Washington-based organisation cut its 2015 growth forecast to -7.5pc, following a contraction of 6.8pc in 2014. Last October, it forecast that the Ukrainian economy would shrink by 1pc this year, while the International Monetary Fund has forecast a contraction of 5.5pc this year.
“Given the situation in the east, we expect gross domestic product (GDP) to continue contracting sharply especially during the first half of the year,” the World Bank said in its latest healthcheck of the economy.
While the organisation expects Ukraine to emerge from recession in 2016, it said this forecast was subject to “substantial risks”, adding that the economy faced a “prolonged” period of contraction if trade relations between the two countries continued to deteriorate and the country failed to implement vital reforms to its energy and banking sectors.
“Growth is expected to be led by a modest recovery of investment from a low base following large declines for three consecutive years,” it said.
However, it added: “Further deterioration in trade relations with Russia could result in prolonged recession as reorientation of Ukrainian exports towards other markets will require more time and investments.”
Ukraine’s $17.5bn (£11.4bn) lifeline from the IMF was approved last month, providing swift assistance for the country’s struggling finances as part of a larger four-year bailout.
The World Bank urged policymakers to act quickly to reduce inefficient subsidies on energy, agriculture, and coal, as well as implement reforms to the pension system.
Ukraine’s conflict with Russia, which escalated after Russia’s annexation of Crimea, has also hurt Moscow.
Dmitry Medvedev, Russia’s prime minister, admitted last week that the double shock of the collapse in oil prices and Western sanctions following the annexation last year presented an unprecedented challenge for the economy.
He said the economy had contracted by 2pc in the first quarter alone compared with the same quarter in 2014, and added that the sanctions could cost Russia €75bn this year – or around 4.8pc of gross domestic product (GDP).