Russia’s invasion of Ukraine will cause their economies to shrink this year by around 10% and 20%, respectively, the region’s leading development bank said in one of the most in-depth economic assessments on Thursday. to date of the impact of the war on the two countries.

The European Bank for Reconstruction and Development said the crisis in Russia is likely to turn into a long period of stagnation as neighboring economies bounce back next year as long as a lasting ceasefire is secured over the next few months. coming months.

While Ukraine will suffer more in the short term due to extensive damage to its physical infrastructure, Russia faces longer term challenges related to the exodus of well-trained workers and loss of access to technologies. Western countries under current sanctions, the bank said.

The EBRD was created in 1991 to help the countries of Eastern Europe and the former Soviet Union to move from a planned economy to a market economy. It stopped making new investments in Russia after that country annexed Crimea in 2014 and announced on Monday that it was closing its Moscow office.

The bank said it estimates that the territory most directly affected by the fighting accounts for 60% of Ukraine’s annual economic output and that about a third of Ukrainian businesses have had to suspend their activities. Electricity consumption is down 60% from normal levels for this time of year, he said.

Assuming a ceasefire can be negotiated within the next two months, the EBRD expects Ukraine’s gross domestic product to contract by a fifth this year, compared to its previous estimate. 3.5% growth. The economy should then rebound and grow by 23% in 2023 if it receives reconstruction aid.

“Even in the optimistic scenario of reconstruction in full swing, it will still be a much poorer country just because a lot of stocks have been destroyed,” said EBRD chief economist Beata Javorcik.

After Moscow’s attack on Ukraine, the United States and its allies adopted some of the toughest economic sanctions ever against a country with the explicit aim of harming the Russian economy, cutting it off from finance internationally and prevent it from importing key technologies.

The EBRD expects the sanctions to contribute to a 10% contraction in the Russian economy this year, after previously forecasting 3% growth. Contrary to its outlook for Ukraine, the bank does not expect a rebound in 2023 and sees the outlook beyond remaining weak.

“There will be less investment, less international trade, less integration of Russia into global value chains, and that, combined with the departure of people from Russia, means lower long-term productivity growth. “said Ms. Javorcik.

The EBRD economist said the slowdown in growth was likely to persist even if sanctions were lifted as part of a peace deal.

“This effect, I would expect to persist well beyond sanctions, if there is no regime change,” she said.

Russia’s prospect of a weakened economy is bad news for Central Asian countries that have maintained close economic ties with the country.

The EBRD estimates that the money sent home by citizens working in Russia represents between 5% and 30% of annual economic output in Armenia, the Kyrgyz Republic, Tajikistan and Uzbekistan. Countries in the region depend on Russian banks for their connections to the global financial system, and much of their trade with other countries passes through Russia.

“They will have to redirect trade flows,” Ms Javorcik said. “Not only because Russia will be poorer and buy less, but also to reach other markets.”

The EBRD has lowered its growth forecasts for all but two of the 33 countries it invests in beyond Ukraine, stretching across North Africa, Central Asia, the Caucasus and Central Europe. and oriental. The exceptions are Azerbaijan and Turkmenistan, both of which are major natural gas producers.

In a separate report on Thursday, ratings agency Moody’s Investors Service said weakening confidence will weigh on growth, especially in countries bordering Russia and Ukraine.

“Across Europe, the security threat will amplify the economic shock, weighing on consumption and investment, with those geographically closest to the conflict being the most exposed,” Moody’s said.

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