Depending on the further development of the military situation, Ukrainian GDP losses may amount to 9-50% this year, estimates the Polish Economic Institute (PIE).
After the Russian aggression against Ukraine began, PIE developed three scenarios for the Ukrainian economy, depending on how the military situation develops: (1) stopping the Russian aggression on the border of the Donetsk and Luhansk oblasts, (2) an intense conflict in the entire eastern part of Ukraine combined with a blockade sea and (3) full-scale conflict, with the seizure of Kiev.
“For today, it is crucial to stop the further escalation of actions, so that the worst scenarios both from the perspective of the local population and the economy do not materialize. To this end, strong EU and US sanctions targeting the functioning of the Russian regime are necessary, such as the freezing of financial assets. Russian oligarchs, cutting off from international interbank settlement systems, limiting the import of raw materials and the sale of high technologies. According to the calculations of the German economic institute Kiel Institute, the mere embargo on Russian gas imposed by the West would result in a 3% drop in Russia’s GDP,” said PIE director Piotr Arak .
The first scenario means a contraction of the Ukrainian economy by about 9% in 2022. Donetsk Oblast generates slightly more than 5% of Ukrainian GDP, and Luhansk – 1%. In this scenario, the eastern industrial districts will also suffer additional losses. In such a situation, Ukraine would fall into a recession comparable to that at the beginning of COVID-19, the Institute said.
In the event of an intense conflict in the entire eastern part of Ukraine, we can talk about total losses of approx. 24% of GDP. In this scenario, hostilities will cover oblasts responsible for a total of 35% of GDP, i.e. Dnipropetrovsk, Donetsk, Kharkiv, Kherson and Zaporizhia. the most important economic importance – they account for 20% of Ukrainian GDP. In addition, one should expect a maritime blockade of the Black Sea districts, which will hit the Odessa Oblast (further 5% of the country’s GDP) and Mykolaivsky (2%) particularly hard.
Economic activity in the remaining districts will also collapse due to the disruption of economic chains and war restrictions.
The third scenario assumes that the conflict will spread throughout the country, which may result in the loss of up to half of the annual GDP. The most pessimistic scenario for the development of the situation in Ukraine is a total conflict. In this case, the scale of economic losses for this country will be the largest – we can talk about an annual loss exceeding half of the GDP, which will mean the seizure of Kiev, which today generates 24% of Ukrainian GDP, and its immediate neighborhood – a further 5.5%.
“The economy of Ukraine has tried in recent years to recover from the crisis of 2014-2015, but this path was first faced by the COVID-19 pandemic, and now by Russia’s military escalation. preparing dedicated funds for the reconstruction of this country,” concluded Arak.
Russian President Vladimir Putin has ordered a special military operation in Donbas. Martial law was imposed throughout Ukraine.
Source: PIE and ISBnews
