By Patryk Goron

On February 24th, 2022, Russia invaded Ukraine. The invasion became the largest attack on a European country since World War II. Two years after the start of the war, its negative effects have been pretty far-reaching.

It is estimated to have caused tens of thousands of Ukrainian civilian casualties and hundreds of thousands of military casualties. Apart from the horrific human toll of the conflict, the economic fallout has been enormous not only for the European Union, but also for Ukraine and the wider world.

Having said that, it was clear from the start that Putin’s war in Ukraine would be a global economic disaster

Let’s focus on Ukraine first, according to Ukraine’s Ministry of Economic Development and Trade, exports decreased by approximately 16% in the first six months following the invasion compared to the same period the previous year. This decline has dealt a significant blow to Ukraine’s economy, as exports play a crucial role in generating revenue and sustaining economic growth.

Compared to before the war, Ukraine’s economic production is currently quite little. The nation suffered a 30–35% GDP (Gross Domestic Product) loss in the first year of the conflict. As a result, Ukraine experienced its worst recession ever. It is expected that its GDP may increase by 0.5% in 2023.

Another problem that Ukraine has to tackle is inflation, which reached a peak of 61.9% in April 2023, according to Ukraine’s State Statistics Service, marking a significant increase from pre-invasion levels. The increasing prices of food and other essential goods have placed immense strain on Ukrainian households, particularly those with limited financial resources.

It is not a surprise that Europe is the region affected the most from an economic perspective, given trade links and reliance on Russian energy and food supplies.

The European Commission’s 2021 Autumn Forecast predicted 4.3% growth in gross domestic product for the EU for 2022, and 2.5 % for 2023, but growth had finally been registered at 3.5 % for 2022 and an estimated 0.5 % for 2023.

If Russia had neither attacked nor threatened Ukraine, Germany’s GDP for example, would have been 0.7% higher and inflation would have been 0.4% lower in the fourth quarter of 2022.

Also, France would have seen inflation 0.3% lower and GDP 0.1% higher without the conflict, while Italian inflation would have been 0.2% lower and GDP 0.3% higher.

What is more, according to the Swiss National Bank study, the war in Ukraine has reduced European economic growth and considerably pushed up inflation across the continent. The report said that Europe has seen a surge in energy prices, financial market turmoil and a sharp contraction in the economies of both Russia and Ukraine.

Moreover, global companies and consumers have undoubtedly been impacted by the conflict. Firms with strong ties to Russia, whether through ownership or trade, saw a significant decline in share prices after the invasion, according to data from the stock market.

The London School of Economics study shows that on average, trade links with Russia caused a 1.53% drop in the value of each country’s aggregate stock market index. Pre-war, firms had an average dependence on Russia of 0.25%. This meant that a firm with an output of $1 billion will have exports and imports to and from Russia worth $2.5 million in total.

There are clear signs that the world economy is splitting into two distinct blocs after two years Russia invaded Ukraine, and that the multilateral trade agreements that have supported trade for almost 30 years are in jeopardy.

For example, following the restrictions on Russian fossil fuel imports into the US and the EU, consequently, Russian fossil fuel exports shifted to Asian countries, making China the leading destination.

If the world broke apart into two competing blocs, global economic growth would be reduced by 5%, the World Trade Organisation has warned.

Also, following the invasion, the value of the Russian ruble against the U.S. dollar and euro dropped to a historic low.

Beyond the economic statistics though, lie the human costs of the conflict. The United Nations estimates that over 10 million people in Ukraine are in need of humanitarian assistance, including food, shelter, and healthcare.

However, even if struggling with a plethora of its own problems, the EU and its Member States have supported Ukraine and Ukrainians with almost €88 billion (figures from January 2024), including financial, economic, diplomatic, humanitarian and military aid.

As the world economy continues to deal with the economic impact of the Russia’s invasion of Ukraine in 2022, the European Commission, the Government of Ukraine, the World Bank Group, and United Nations predict a total cost of €452.8 billion for Ukraine’s reconstruction and recovery over the next decade, up from €383 billion estimated a year earlier.