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All post-Covid recovery gains at risk as EBRD cuts growth forecast again


Multilateral is basing forecasts on ‘relatively optimistic assumptions’, says chief economist, as some say further downward revisions are likely

The speed at which the Russia-Ukraine war is hurting economic prospects in Europe and other regions where the EBRD operates was laid bare on Tuesday as the multilateral lender cut its aggregate growth forecast for these countries to just 1.1%.

This is 0.6 percentage points lower than its previous forecast, made just two months ago, and 3.1 points below the EBRD’s pre-war predictions. Though most of the latest downgrade is down to a continued lowering of expectations for Ukrainian GDP as Russia’s invasion of the country continues, the war has worsened the outlook in all but two EBRD region countries.

Yet the situation could get a lot tougher. Beata Javorcik, the EBRD’s chief economist, admitted on Tuesday that the bank’s forecasts were made on “relatively optimistic assumptions”. Most notably, the bank is assuming that the war ends in late summer, allowing the recovery and reconstruction of Ukraine to begin towards the end of this year. Indeed, the EBRD estimates that Ukraine’s economy will shrink by 30% — versus forecasts of 35% from the IMF and 45% from the Vienna Institute for International Economic studies.

Moreover, Javorcik warned that if the war ultimately leads to interruptions to the gas supply, then the region’s entire post-pandemic rebound could be lost.

“If we take a more pessimistic view of there being gas supply interruptions, then we expect all the post-Covid recovery gains to be wiped out this year,” said Javorcik. “GDP [would] not return to pre-pandemic level until towards the end of next year.”

Without an end to the war, it seems inevitable that the outlook will only continue to deteriorate, with policymakers powerless against food and energy inflation directly caused by the war.

“Any economic forecasts made today are likely to be cut again,” Simon Quijano-Evans, chief economist at Gemcorp Capital in London, told GlobalMarkets. “Whether it’s the IMF, EBRD, or market participants, we’re going to be in a continued process of revising forecasts downwards if the invasion doesn’t stop.

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