NewsUkraine conflict's extensive impact: Staggering GDP losses and global inflation surge

Ukraine conflict's extensive impact: Staggering GDP losses and global inflation surge

What price did the Ukrainian economy pay for the Russian invasion?
What price did the Ukrainian economy pay for the Russian invasion?
Images source: © Getty Images | Johannes Simon

11:13 AM EST, February 24, 2024

How has two years of warfare affected Russia, Ukraine, and the world? Expert analysts from XTB delve into these aftereffects. They unanimously agree that Ukraine is the more severe casualty in this conflict, as it is subjected to near-daily and extensive bombings.

Ukraine's GDP plummeted by several tens of percentages due to the war

Research by the National Institute of Economic and Social Research indicates that the conflict and ensuing sanctions have resulted in Russia incurring losses slightly exceeding 11 percent of its GDP in 2022 and 2023. Ukraine's losses are more drastic, running into several tens of percent of its GDP, which underscores the direct damage done to the infrastructure and economy by military actions - explain the XTB analysts.

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Russia's influence on global inflation

Globally, the conflict's fallout is relatively restrained, estimated at 1 percentage point. Losses for the euro area outstrip this, hitting between 1.2 and 1.5 percentage points over two years.

The war has shuttered numerous trade routes and prompted a marked surge in commodity prices, thereby directly affecting inflation. Russia, a major producer and exporter of key resources and goods like crude oil, natural gas, wheat, corn, aluminum, palladium, and synthetic fertilizers, faced sanctions, precipitating a radical hike in these resources' prices worldwide.

The conflict might have added roughly 1.8 percentage points to global inflation in 2022 and about 0.9 percentage point in 2023 - XTB analysts estimate.

Due to their proximity to the warzone, European countries were particularly susceptible to rising energy commodity prices, triggering noticeable price escalations in Poland, Slovakia, the Czech Republic, Hungary, and the Baltic States.

Fuel prices normalize once again

Contrary to initial worries about availability, raw material prices have calibrated fairly rapidly. The price of crude oil, while still exceeding 100 dollars per barrel, plummeted by 50 percent from its 2022 high to its 2023 low. This is thanks to Russia rerouting this raw material towards the Asian market and Europe securing alternative suppliers. Similarly, an agreement with Russia permitted the sea export of wheat from Ukraine, thereby finding alternative sales markets.

Europe, transitioning to liquified natural gas (LNG), is seeing gas prices nearing pre-pandemic levels, attributable to heightened competition in the LNG market. Nevertheless, XTB experts conclude that the conflict exposed vulnerabilities in Europe's energy mix, necessitating the exploration of new energy sources.

Geopolitical fallout of Ukraine's war

The war has also led to shifts in geopolitical and military strategies. As a result, the United States is now shifting focus to other regions like Taiwan and the Middle East, which could influence global political and security dynamics. A potential transferral of power in the US, particularly one linked to Donald Trump, may heighten tensions and change the landscape of NATO support for Ukraine.

"There is a substantial chance of a looming trade war potentially escalating into a larger conflict. Trump could pivot militarily towards the Middle East, which may cause significant fluctuations in the energy commodity market," the analysis reads.

The conflict in Ukraine, spanning two years, has starkly morphed the global economy, political landscape, and security, underscoring international linkages and dependencies. These repercussions will leave enduring marks on global economics, geopolitics, and future international relations.

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