Russian war ruins Ukraine’s economy

Welcome to today’s Morning Brief, where we examine the economic impact of Russia’s war in Ukraine, Indian Foreign Minister Subrahmanyam Jaishankar’s visit to Washington and more news to follow from around the world.

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Ukraine’s economy is collapsing

Welcome to today’s Morning Brief, where we examine the economic impact of Russia’s war in Ukraine, Indian Foreign Minister Subrahmanyam Jaishankar’s visit to Washington and more news to follow from around the world.

If you would like to receive Morning Brief in your inbox every weekday, please sign up here.


Ukraine’s economy is collapsing

As Russia’s war in Ukraine continues with no end in sight, the economic cost of the Russian campaign is beginning to come into focus.

On Monday, the World Bank predicted a staggering 45.1% drop in Ukraine’s GDP as war severely limits the country’s imports and exports, public and private investment plummets and government spending households are drying up amid a refugee and displacement crisis. The speed of fall is unprecedented in modern conflict; it was only two years after the start of the war in Syria that its GDP finally halved pre-war levels.

Although less abrupt, the decline in GDP should not only affect Ukraine. The Russian economy, under heavy Western sanctions and facing international capital flight, is also expected to contract by 11.2%.

The story is similar but milder in the former Soviet region, where economies are expected down 4.1%, a change of more than 7% from the pre-war projections of 3% growth.

Globally, the war in Ukraine is expected to hurt prospects for recovery from the shocks of the onset of the coronavirus pandemic. The World Trade Organization announced on Monday that the war could drop world GDP growth up to 1.3% this year and reduced world trade growth from 4.7% to 2.4-3%.

These grim predictions are in line with national forecasts estimates from the Ukrainian Ministry of Economy and the Kyiv School of Economics, which estimate the current economic losses at between 564 and 600 billion dollars, or almost 4 times the country’s annual GDP.

As FP columnist Adam Tooze wrote last week, the economic impact of war beyond the battlefield needs to be watched closely. “Combined with the uneven recovery from COVID-19, soaring inflation and tighter monetary policy, the war is adding to an already inhospitable environment for fragile and heavily indebted low-income and emerging economies,” writes Tooze. .

“For the future shape of the global economy, how the world handles the debt crises unleashed by this war in places as far apart as Sri Lanka and Tunisia is likely to be at least as important as the desperate efforts of the Russia to circumvent sanctions in its trade with China and India,” he notes.

Whether the Ukrainian economy continues to fall will depend on whether the war ends this year or whether it continues. The World Bank estimates that Ukraine could grow by 7% by 2025 (albeit with a smaller economy than before the war) as long as recovery begins soon and refugees can return.

Of course, when a country is struggling for survival, the lines on an economic chart – whatever the trajectory – will be of little consequence. Still, that hasn’t stopped Ukrainians from considering ways to raise funds. On Monday, Oleg Ustenko, the main economic adviser to Ukrainian President Volodymyr Zelensky said that negotiations were underway with several countries to carry out a “mass attack” to seize key Russian assets, including tankers, as war reparations.

In an interview with the FinancialTimesUkrainian Finance Minister called for immediate financial support from the international community to help cover a government spending shortfall that could climb to as much as $7 billion a month as summer approaches.

Even though the war still shows no signs of stopping, with a new Russian offensive brewing in eastern Ukraine, the subject of Ukraine’s reconstruction is hotly debated. David Frum, write in Atlantic, suggests that Western countries should begin their reconstruction plans now while viewing any aid as a “mutually beneficial investment”. Frum compares Ukraine’s future trajectory to that of 1950s Italy, when a post-war boom spurred by Marshall Plan aid helped encourage further growth across Europe.

How much should Europe and others spend to rebuild Ukraine? Between $220 billion and $540 billion, according to expert estimates from a recent post from the Center for Economic Policy Research in London. However, the the authors warn “The cost of reconstruction increases with each additional day of war and at an increasing rate as people spend more time away from home, children become more traumatized and private sector businesses disintegrate.


What we follow today

Putin meets Lukashenko. Russian President Vladimir Putin speaks with Belarusian President Alexander Lukashenko at the Vostochny Cosmodrome, a spaceport in Russia’s far east. The meeting comes as Lukashenko has required to be part of any negotiation to resolve the war in Ukraine and said that “there can’t be separate deals behind Belarus’s back”.

Tai meets Jaishankar. US Trade Representative Katherine Tai is meeting Indian Foreign Minister Subrahmanyam Jaishankar in Washington today. Jaishankar’s meeting follows Monday’s meeting with US Secretary of State Antony Blinken and comes after US President Joe Biden and Indian Prime Minister Narendra Modi held a video call.

White House press secretary Jen Psaki said Biden “made it clear” to Modi that “he does not believe it is in India’s interest to accelerate or increase imports of Russian energy or other raw materials”. During a press conference with Blinken, Jaishankar said that Washington’s anger over Russian energy purchases should be focused on Europe instead. “I suspect, looking at the numbers, that our total purchases for the month would probably be less than what Europe does in an afternoon,” he said.


FP live

Would Putin use nuclear weapons? Join FP Deputy Editor Sasha Polakow-Suransky today at 12 p.m. ET for a live chat about the risk of a US-Russian nuclear confrontation with Foreign PoliceThe columnists of “It’s debatable” Emma Ashfordsenior fellow at the Atlantic Council’s Scowcroft Center for Strategy and Security, and Matthew Kroenigthe deputy director of the Scowcroft Center.

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Christi C. Elwood