World Bank: Ukraine shocks to drag on Asian economies

Disruptions to supplies of commodities, financial strains and higher prices are among impacts of the crisis in Ukraine that will slow economies in Asia in the coming months, the World Bank said in a report released on Tuesday.

The report forecasts slower growth and rising poverty in the Asia-Pacific region this year as “multiple shocks” compound the challenges facing people and businesses.

Growth for the region is estimated at 5 percent, down from an original forecast of 5.4 percent. A “low case” scenario foresees growth dipping as low as 4 percent, the report said. Asia-Pacific experienced a rebound to 7.2 percent growth in 2021 after many economies experienced downturns with the onset of Covid-19.

The World Bank anticipates that mainland China, the region’s largest economy, will expand at a 5 percent annual pace, much slower than the 8.1 percent growth of 2021.

Russia’s military campaign in Ukraine has helped drive up prices for oil, gas and other commodities, eating into household purchasing power and burdening businesses and governments that were contending with unusually high levels of debt due to the pandemic, the report said.

The international lending institution urged governments to lift restrictions on trade and services to take advantage of more opportunities for trade and to end fossil fuel subsidies to encourage adoption of more green energy technologies.

“The succession of shocks means that the growing economic pain of the people will have to face the shrinking financial capacity of their governments,” said the World Bank’s East Asia and Pacific Chief Economist Aaditya Mattoo. “A combination of fiscal, financial and trade reforms could mitigate risks, revive growth and reduce poverty.”

The report pointed to three main potential shocks for the region: the Ukraine crisis, changing monetary policy in the US and some other countries, and a slowdown in China.

While rising interest rates make sense for cooling the US economy and curbing inflation, much of Asia lags behind in its recovery from the pandemic. Countries such as Malaysia may suffer outflows of currency and other financial repercussions from changing monetary policies in Western and other nations, it said.

Meanwhile, China’s economy could falter as outbreaks of Covid-19 provoke lockdowns like the one now in place in Shanghai. That is likely to affect many Asian countries whose trade relies on demand from China.

“These shocks are likely to magnify existing post-Covid difficulties,” the report said, pointing to shrinking incomes and soaring prices as likely consequences. (AP)