The European Bank for Reconstruction and Development (EBRD) has revised its growth forecast for 2023 downwards. This review is particularly relevant to Ukraine, where fighting continues to rage. The institution now expects growth of 2.1% in 2023, compared to 3% in the previous projections in September. For all of its regions, activity should accelerate to 3.3% in 2024.
The EBRD economy overall accelerated by 2.4% last year, slower than in 2021, due to the Russian invasion of Ukraine and the softening of the post-covid recovery. Gas prices have largely fallen back to their pre-war levels in Ukraine, but in real terms, gas price levels remain “comparable to the peaks of the 1980s and six times higher than in the US,” the EBRD said.
Factors holding back growth
The EBRD also pointed out that very high inflation is eroding real wages and weighing on consumption. Inflation fell to 16.5% in the EBRD’s economic zone in December, after peaking at 17.5% in October. “What is new” compared to September is that “we don’t see a quick resolution to the war, which means that uncertainties persist and are hurting investment,” said Beata Javorcik, the EBRD’s chief economist, interviewed by AFP.
The growth forecast for Ukraine has been sharply revised downwards to 1% for this year, compared to 8% in the previous forecast published in September. In addition to the length of the conflict, which is dragging on, the fact that the Russian army is “bombing civilian infrastructure” in Ukraine has largely weighed in the revision of forecasts.
Earthquake in Turkey
In Turkey, which was hit by a devastating earthquake last week, growth had already slowed considerably in 2022. The EBRD expects it to decline further to 3 percent in 2023 and 2024, due to higher external financing needs and political uncertainty related to the elections. She points out that these forecasts were made before the earthquake that devastated the southeast of the country and northern Syria. The impact of the disaster on economic activity this year “should be limited to 1% of GDP, as the boom in reconstruction efforts in late 2023 should partially offset the damage” to infrastructure, says the institution, which relies on the history of the devastating earthquake in 1999.
