Having triggered the greatest supply shock since the early 1970s, Russia's war on Ukraine is causing a major economic growth slowdown, according to the European Bank for Reconstruction and Development (EBRD) on Thursday.
In its first economic forecast since the war began, the EBRD revised down its growth forecast for the year for the regions where the bank operates by 1.7% to 2.5%.
The growth is expected to pick up in 2023, hitting 5% year-on-year, it added.
The downward revision stemmed from the surge in cost for commodities such as food, oil, gas, and metals as Russia and Ukraine are major suppliers of wheat, corn, fertilizer, titanium, and nickel.
The gross domestic product (GDP) of Ukraine is projected to contract by 20% in 2022, compared to a rise of 3.5% in the previous report.
The EBRD forecast the Russian economy will narrow by 10% this year versus a previous 3% growth projection.
Being heavily dependent on remittances received from Russia, Central Asian countries will be badly hit by the fall in the value of the ruble and restrictions on its convertibility, it added.
Central European countries will face a risk of disruption due to being loosely integrated into manufacturing supply chains in Ukraine, the bank noted.
"Inflationary pressures were already exceptionally high and it seems certain they will now be worse, which will have a disproportionate effect on many of the lower income countries where we work," said Beata Javorcik, the chief economist of the EBRD.
In addition, the report stressed that skilled workers who fled from Ukraine may contribute to the countries' economic growth in the longer term, particularly in countries with aging populations.