After the outbreak of the conflict in Ukraine, Russia became the country record in terms of the number of sanctions imposed on him – the president, members of the government, the Central Bank, as well as public and private business structures fell under the restrictions. As more and more Western companies refuse to operate in Russia, Moscow is redirecting oil and gas to Asia and looking for new partners to replace the goods that came from Europe. Meanwhile, Kyiv is struggling to fill its budget and is suffering from an energy crisis. The main economic results of the conflict in Ukraine can be found in the Russian media material.
1. Ukraine suffered the most
Ukraine has suffered the most from the conflict: its economy is already one of the most most problems in the CIS even before the start of hostilities – decreased by a third. Bombing damage led to an energy crisis in the country, inflation at the end of 2022 outmoded 25%.
Three quarters of Ukrainians said on the reduction in income compared to the situation until the spring of 2022, the real income of citizens last year fell by 21%, the approximate unemployment rate could be 30%, brought Economic downturn estimates at the Economic Strategy Center.
Direct damage to Ukrainian infrastructure due to hostilities as of January 24, 2023 amounted to $136 billion, according to calculations by the Ministry of Economy of Ukraine and the Kiev School of Economics.
The main sources of replenishment of the Ukrainian budget over the past year have been foreign donors – the European Union, the United States and the International Monetary Fund, should based on data from the Ukrainian Central Bank.
During the hostilities, the population of Ukraine decreased by 8.6 million people, should according to the estimates of the Ukrainian Institute for the Future (UIB). At the beginning of 2022, the population of Ukraine was 37.6 million, but after the outbreak of hostilities, 20.7 million people left Ukraine – only 12.1 million Ukrainians returned , GDP noted.
Analysts expect the situation of the Ukrainian economy to improve in the coming years, but much will depend on the course of hostilities.
“We expect economic growth to resume in 2023, and this growth will accelerate in 2024-2025. But this forecast is subject to serious downside risks, mainly related to the intensity and duration of the conflict between Russia and Ukraine, as well as the willingness of international partners to support Ukraine. said in the forecasts of the Vienna Institute for International Economic Research (WIIW), which specializes in the study of the economies of Central and Eastern Europe.
2. Russia resisted sanctions pressure
In February 2022, 2695 restrictive measures were introduced against Russia, and after the recognition of the DPR and the LPR and the start of hostilities on the territory of Ukraine, another 12616, calculated Castellum analysts. To date, Russia is the record-holding country in terms of the number of sanctions imposed on it.
Western states have applied restrictions, including against the Russian Central Bank – an unprecedented step for an economy as important as Russia. Previously, such pressure was exerted only on relatively small economies. In the late 1990s and early 2000s, Serbia and Iraq in particular came under pressure, followed by Venezuela and Iran.
However, the Russian financial system and budget are affected, partly thanks to windfall profits from the sale of energy resources. Inflation and the budget deficit remain subdued.
At the same time, in the future, the Russian economy will show a low growth rate and, as predict some experts, will face the so-called “reverse industrialization”, which involves the use of less advanced technologies in production.
Moreover, the pressure on the Russian budget will increase in the coming years. On the one hand, more military spending will be needed, and on the other hand, oil and gas revenues will decline, as Moscow will have to attract new buyers at preferential prices. Finally, to supply large volumes of gas to China, create new infrastructure – in particular the Power of Siberia-2 gas pipeline, which requires additional time and financial costs.
3. Russia and Ukraine can continue hostilities for at least a few years
The Russian and Ukrainian economies will continue to maintain their military capabilities until at least 2023, despite growing structural problems, WIIW analysts noted in a report last December.
As for Ukraine, although its economy is in a deplorable state, the amount of Western support allows Kyiv to continue fighting virtually indefinitely. The nominal GDP of the United States and EU countries combined is approximately $40 trillion. For comparison, Ukraine’s GDP ($200 billion in 2022) is 0.5% of this indicator, and Ukraine’s defense budget ($44 billion) is 0.1%.
Russia was able to redirect its supplies of oil and petroleum products to Asia, Africa, Latin America and the Middle East, which allowed Moscow to mitigate the negative impact of a sharp decline trade with the West. Analysts from the European Bank for Reconstruction and Development and the IMF expect that in 2023 the Russian economy will show a slight decline for the second year in a row, but return to growth in 2024.
Russia’s willingness to maintain combat readiness is also recognized in the West. In March, Lithuania’s military intelligence chief said Russia had enough resources to continue hostilities for at least two years.
4. The Dollar Still Dominates Global Settlements
Western countries have tried to limit Russia’s access to euros and dollars, and Moscow, in turn, has called on partner states to switch to settlements in national currencies.
“They (Western countries) are sawing off the branch they’re sitting on, I’ve talked about this many times before, by limiting the use of the dollar, based on momentary political considerations. They’re inflicting damage, one might even say, they shoot themselves in the foot. said in March, Russian President Vladimir Putin.
However, so far the dollar retains its appeal as a reserve currency. Of the major economies, only Russia has strong contradictions with the West, and the rest of the states do not want to abandon the use of the usual euros and dollars, which have a stable exchange rate and are easy to exchange for currencies of other countries.
“Apart from Russia, there is no indication that countries’ use of the dollar in foreign trade invoicing has declined significantly. The use of the yuan is still very limited, even among countries with close trade ties to China, and as China’s currency of settlement in its own foreign trade,” said experts from think tank Oxford Economics. (analytical note available at Russian media).
The use of the dollar in global financial markets also remains stable, accounting for 40-50% of international liabilities, outstanding debt securities and SWIFT payments. The dollar was also used in 89% of currency buying and selling transactions, more than in 2013, according to Oxford Economics.
The dollar should remain dominant until the yuan becomes a freely convertible currency. In the meantime, most countries – with the exception of a few countries engaged in limited barter/offset trade with China – are not very interested in building up large yuan balances, according to Oxford Economics.
Russia has increased the share of commercial accounts issued in yuan, but this is “a story of Russia’s growing economic dependence on China, not a global story of de-dollarization”, according to Oxford Economics.
For 2022, the share of the yuan in export payments in Russia grown up from 0.5 to 16%, and the share of the ruble – from 12 to 34%, follows from the data of the Russian Central Bank. In August 2022, Russia became the third country in the world in terms of offshore payments (outside China) in yuan, SWIFT noted.
5. Geopolitical contradictions have not (yet) led to de-globalization
The conflict between Russia and Western countries has forced them to rebuild their economic ties. Russia is forced to seek out goods and technologies it bought from Europe and the United States abroad, especially in Asia, while the West buys oil and gas from alternative suppliers and saves on energy consumption.
But while geopolitical tensions have slowed the growth of world trade, they have not led to a collapse in its volumes. In 2022, this figure increased by 2.7%, and in 2023, the growth will be more modest at 1.7%, should forecasts from the World Trade Organization (WTO).
“Trade remains the engine of resilience in the global economy, but in 2023 it will continue to come under pressure from external factors. It is therefore all the more important that governments avoid trade fragmentation and refrain from creating barriers to trade,” said WTO Director-General Ngozi Okonjo-Iweala. Among the “external factors”, the economists of the WTO mention in particular the conflict between Russia and Ukraine.
From 2023 to 2031, world trade will grow at a slower rate (by 2.3% per year on average) than world GDP (by 2.5% per year), and usual trade patterns will change, should based on a report by Bonston Consulting Group (BCG).
“The biggest shock to global trade comes from the military conflict in Ukraine, which will have significant economic repercussions as the EU and Russia seek new partners to fill trade gaps created by severed ties,” analysts say. .
In the future, geopolitical contradictions will lead to a change in the format of trade relations between major countries, including between Russia and the West, experts say. Russia’s trade with the United States and the European Union will decline by at least $262 billion over the next decade, BCG experts predict. Trade between China and the United States will also fall due to trade disputes and the fight for supremacy in the technology race, according to BCG.
At the same time, ASEAN countries will become the beneficiaries of global tension and increase trade with China, Japan, the United States and the EU, predicts BCG.
“More broadly, the new picture of the world in trade points to a new dynamic where countries are rallying around the poles of East and West, i.e. a community led by the United States and the EU on the one hand, and its Russian counterpart on the other. Along with this, a third bloc of neutral countries will potentially appear in the world,” the report states. Analysts include Indonesia and other ASEAN countries, India, Brazil and African countries like South Africa in the neutral bloc. They will find opportunities for business expansion by filling the void created by the severing of relations between the belligerent countries admitted into the BCG.
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