NEW YORK – On Wednesday, January 25, United Nations economists released their annual report, World Economic Development and Prospects 2023, in New York. According to experts, the economic damage inflicted on Ukraine by Russia as a result of the war it started is “enormous”.
The report indicates that during the year of the war, the Ukrainian economy contracted by more than 35% due to the significant destruction of infrastructure, as well as the loss of human capital associated with the general mobilization and the mass migration of the population. In July 2022, a third of all needs of the Ukrainian population were covered by funds provided by the National Bank of Ukraine. Half of the population’s needs were financed by the European Union, the united states, the World Bank and the International Monetary Fund.
The budget deficit of Ukraine in the near future will amount to 5 billion euros per month. Reviving the country will require between 350 and 500 billion euros, Hamid Rashid, head of global economic monitoring and lead author of the report, told a press conference at the UN.
“There is a significant need for additional funding,” he said. “This means that the international community will have to provide assistance to Ukraine, the Ukrainian economy is facing enormous difficulties.”
The European Union has already promised to provide Ukraine with 18 billion euros for reconstruction, but this will not be enough given the huge budget deficit.
As for the Russian economy, according to the UN expert, its volume has not fallen as significantly as expected: not by 10-15% according to the first forecasts, but by 3.5%. According to Hamid Rashid, three main factors contributed to this:
The volume of the Russian economy is quite large – it is the 11th largest economy in the world. In Russia, reorientations and restructurings were carried out during the year, aimed at finding sources of growth to the detriment of domestic resources;
The Central Bank of Russia has played an important role in strengthening and balancing the ruble exchange rate. Lending conditions have been improved, taking into account the more favorable ruble exchange rate for the economy. Domestic economic activity has not been particularly disrupted as previously thought;
And the third factor is the price of energy. The Russian economy has received significant economic injections due to rising fuel prices in 2022.
However, according to UN experts, the forecast for 2023 is less encouraging. No economic growth is expected in Russia in 2023. This will be facilitated, for example, by the partial mobilization which has deprived the country of part of its human capital. In addition, some sectors of Russian industry have already started to experience shortages in their supply chains.
The report says nothing about the impact of international sanctions on the growth of the Russian economy, as this is not the subject of the report.
In general, according to the UN report “World Economic Development and Prospects for 2023”, forecasts for the development of the world economy are disappointing. Due to a series of major shocks in 2022 – the COVID-19 pandemic, the war in Ukraine and the resulting food and energy crises, soaring inflation, worsening debt burdens and the climate emergency – global output growth in 2023 year will decline from 3% to 1.9%. This is one of the lowest growth rates in recent decades.
However, global growth is expected to pick up moderately to 2.7% in 2024 as some of the factors holding back economic growth may start to ease. This will be largely influenced by the pace and order of further monetary policy tightening, as well as the course and consequences of the war in Ukraine.