4 October 2022, Washington -- Prospects for post-pandemic economic recovery in emerging and developing economies in Europe and Central Asia are dim because of the ongoing war in Ukraine, according to the World Bank's Economic Brief for Europe and Central Asia released today.

Regional economic activity is expected to remain Mired in the doldrums into next year, with growth forecast to be as low as 0.3 per cent in 2023, amid continued shocks from energy prices. So far, however, the region has weathered the storm of Russia's invasion of Ukraine better than had been expected. Regional output is now expected to fall 0.2 per cent this year, reflecting stronger-than-expected growth in some of the region's largest economies and a prudent extension of stimulus programmes put in place during the pandemic.

Economic activity has been devastated by the destruction of production capacity, damage to farmland, reduced Labour supply (more than 14 million people are estimated to have been displaced) and Ukraine's economy is now expected to shrink by 35 per cent this year. According to the Bank's latest estimates, the rehabilitation and reconstruction needs of the social, productive and infrastructure sectors total at least $349 billion, more than 1.5 times the size of Ukraine's prewar economy in 2021.

"Russia's invasion of Ukraine has triggered one of the largest displacement crises, with a heavy toll on human life and the economy," said Anna Bierde, the bank's vice-president for Europe and Central Asia. As the war needlessly drags on, Ukraine continues to need enormous financial support, as well as funds for rehabilitation and reconstruction projects that can be launched quickly."

Massive trade disruptions and food and fuel price shocks led to high inflation and subsequent tightening of global financing conditions, and the global economy continued to be weakened by the war. Activity in the euro area, the largest economic partner of the emerging market and developing economies of Europe and Central Asia, deteriorated markedly in the second half of 2022 due to supply chain woes, increased financial stress, and lower consumer and business confidence. The most damaging effect of the invasion, however, has been a surge in energy prices at a time when Russia's energy supplies have been decimated.

Growth forecasts for 2023 in emerging market and developing economies in Europe and Central Asia have been downgraded across the board, given the high degree of uncertainty surrounding the regional outlook. The continuation or intensification of war may result in greater economic and environmental damage and a higher risk of fragmentation of international trade and investment. The risk of financial stress also remains high in an environment of high debt and inflation.

The supplementary paper analyses the impact of the energy crisis. Global oil, gas and coal prices have been rising since the start of 2021, but they spiked sharply after Russia invaded Ukraine, pushing inflation in the region to a multi-decade high. This unprecedented crisis affects both consumers and governments: it constrains fiscal capacity; Enterprise productivity; And the well-being of people.

The worst affected are countries with moderate to high dependence on gas imports in heating (which accounts for 30 per cent of energy demand), industry or electricity, and those closely linked to the EU energy market. These countries must prepare for gas shortages and develop contingency plans to mitigate the worst impacts on households and businesses, including energy conservation, energy efficiency, and quota/rationing schemes. Behavioural change activities that promote heating efficiency in homes and buildings, such as resealing window frames and adding insulation, require relatively little investment and have immediate results.

"The stark reality of multiple crises -- the war in Ukraine, the ongoing pandemic, and soaring food and fuel prices -- reminds us that governments need to be prepared to manage large, unexpected shocks that can spread quickly," Ms. Bierde said. The social protection system is the cornerstone of poverty alleviation and needs to be modernised so that it can function effectively in the face of shocks and long-term challenges."

The briefing was devoted to the region's social protection systems, which have provided critical support to families and businesses during the pandemic and, more recently, the war in Ukraine.

The region's pandemic response includes two broad categories of policy tools: income protection measures and employment protection measures. The briefing assessed the effectiveness of these measures in promoting economic growth, reducing poverty and protecting jobs. The brief found that in the short run, higher spending on employment protection measures helped increase employment rates and reduce poverty, but the impact on economic growth was modest.

Outbreak during lessons is guide for policy makers, social protection system should have adaptability and inclusive, make it not only can effectively cope with the short-term economic impact, and can adapt to the long-term trend is changing Labour market, including globalization, population trends, technology innovation, the impact of climate change and climate action.

Policy interventions to build the social protection system of the future could include: (i) guaranteed minimum income support designed to protect individuals and families from adverse shocks; (ii) Regulatory reform to gradually remove restrictions on the hiring and firing practices of firms and ultimately support the creation of formal jobs and the reduction of informal jobs in the private sector; (iii) Improve coverage and protection of vulnerable groups; (iv) Realize digitalization, improve service quality and increase service scale.