It has been over a year since Russia full-scale invasion of Ukraine, the war economic impact still reverberates around the world. The war – while not being the key factor explaining the slower-than-anticipated economic growth in 2022 and downgraded forecasts for 2023 – weighed negatively on global economic activity, adding to inflationary pressures worldwide and impeding the post-pandemic recovery.
The war has contributed to volatile and elevated commodity and energy prices, which exacerbated food shortages and stoked inflation in many regions across the world. Although energy and grain prices subsided from their mid-2022 peaks, the risks of their resurgence remain, and Europe may still face challenges to its energy security.
Some effects of the war have been mitigated by targeted policy measures and initiatives, including the UN-brokered Black Sea Grain Initiative. Nevertheless, uncertainty over the duration and intensity of the conflict, along with potential export restrictions in food-exporting countries, mean that food supply challenges will likely persist in 2023. Countries have also taken steps to secure imports of essentials, given the disruption of supply chains. It remains an open question as to whether global supply chains will evolve into significantly different configurations, given the accumulated experience with the COVID-19 pandemic and the war in Ukraine.
The World Economic Situation and Prospects 2023 launched last month has estimated some of the economic consequences of the war. Ukraine economy suffered heavy losses, contracting by over 30 per cent in 2022 according to preliminary national data, and after the end of the conflict, will need large-scale and expensive reconstruction efforts. International support for Ukraine from various partners has remained steadfast over this period.
While initial estimates had predicted a 10 to 15 per cent contraction in the Russian economy, the contraction over 2022 was considerably lower at 2.1 per cent according to most recent data from the Russian Federal State Statistics Service, as export earnings remained strong despite the war and a range of sanctions. However, the near-term outlook for the Russian economy remains uncertain.
Near-term economic prospects for the Commonwealth of Independent States and Georgia have been significantly impacted. Impacts occur through numerous channels, including migration, commodity prices, market volatility, remittances and changes in fiscal space. Individual country effects vary by degree of exposure and coping capacity, and several economies have performed better than foreseen earlier due to the relocation of some economic activity from the Russian Federation. In the longer run, political and economic fallout from the conflict is likely to shape trade and finance flows in CIS countries and the overall framework of their integration into the global economy.
It is important to emphasize that the specific impact on the global economy depends on the duration and intensity of the conflict, as well as the responses of various countries and international organizations. Geopolitical conflicts have complex and interconnected effects, and it may take time to fully assess their consequences on the global economic landscape.
