In times of peace, proximity to Russia and Ukraine’s markets was a boon. In war, close economic ties have become burdensome. At the start of the year the World Bank expected Europe and Central Asia to grow by 3% in 2022, following the rebound from the pandemic. But that optimistic prediction has been replaced with a forecasted contraction of 4.1%, twice as deep as the recession induced by covid-19 in 2020.

The biggest blow is to the GDP of Ukraine, which the bank reckons could fall by 45.1%. It will take years for its population to recover, and for destroyed infrastructure to be rebuilt. Russian GDP is forecast to shrink by 11.2% this year, largely as a result of Western sanctions.

For other countries, the war will mean falling into another recession just as they recover from the pandemic. The World Bank forecasts that the economy of Belarus, which the West has sanctioned for its role serving as a launchpad for Russian attacks on Ukraine, will contract by 6.5% this year. Landlocked Moldova, hooked on Russian gas, will see an expected growth rate of 3.9% turn to a drop of 0.4%.

Former Soviet republics in Central Asia will suffer from a shrivelling of remittances from Russia. Before the war these accounted for 30% of GDP in Tajikistan, 28% in Kyrgyzstan and 12% in Uzbekistan. As Russian businesses sack workers, migrants will send less money home. Kyrgyzstan now faces the largest forecast drop in GDP of any nearby country. What had been an expected expansion of 4.7% is now reckoned to be a contraction of 5%.

The news is not all bad. Soaring energy prices could help Azerbaijan, a major hydrocarbons exporter. Its oil and gas sector is already near capacity, but it hopes to nearly double deliveries of natural gas to Europe in the next four or five years via its new Trans-Anatolian pipeline, as Western countries seek to wean themselves off Russian energy. Germany’s suspension of the Nord Stream 2 gas pipeline, which would have supplied it with more Russian gas, will bolster Azerbaijan’s negotiating position.

Some central European economies also stand to gain from Ukrainian labour. The World Bank‘s GDP forecast for Poland, the main destination for refugees fleeing the war, has fallen by only 0.8 percentage points. For now Poland is battling double-digit inflation and strained public finances. But it hopes that those Ukrainians who stay—which the UN’s refugee agency reckons could amount to fully three-quarters of the 2m who have so far arrived—will help plug its 200,000 job vacancies. ■

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