The World Bank said economic output for its regional grouping of countries in eastern Europe and central Asia is forecast to contract by 0.2% in 2022 and return to weak growth of 0.3% in 2023 due to spillover effects from the war in Ukraine.
The 2022 forecast is a marked improvement over the World Bank's previous forecast of a 4.1% GDP contraction for the region that includes Ukraine, Poland, Russia, Turkey and surrounding countries. It reflects better-than-expected resilience and growth in some of its region's largest economies, along with extensions of pandemic-era stimulus programs in some countries.
The bank said it now expected Ukraine's economy to shrink 35% in 2022, an improvement over the 45% contraction forecast earlier this year, but Ukraine's economy is "scarred" by destruction to productive capacity, damage to agricultural land and reduced labor supply with the displacement of 14 million people.
The development lender said the outlook for its Europe and Central Asia region, is subject to "considerable uncertainty" with a prolonged, or intensified war causing greater physical and environmental damage and fragmentation of trade and investment.
"The risk of financial stress also remains elevated, given high debt levels and inflation," the World Bank said.
According to recent World Bank estimates, Ukraine's recovery and reconstruction needs across social, productive, and infrastructure sectors total at least $349 billion - more than 1.5 times the size of its GDP in 2021.
"Ukraine continues to need enormous financial support as the war needlessly rages on as well as for recovery and reconstruction projects that could be quickly initiated," Anna Bjerde, World Bank Vice President for the Europe and Central Asia region, said in a statement.
The regional grouping includes Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kosovo, Kyrgyzstan, Moldova, Montenegro, North Macedonia, Poland, Romania, Russia, Serbia, Tajikistan, Turkey, Turkmenistan, Ukraine and Uzbekistan.