With no positive sign in sight for a quick end to the Russia-Ukraine conflict, governments and economists are now increasingly worried about its economic impact, not only on Ukraine and other European nations, but also on the whole world.
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UKRAINE IN RECESSION
Ukraine has suffered bitterly from the conflict, with its economy now mired in a severe recession. Yulia Svyrydenko, Ukraine's economy minister, predicted that the country's GDP would plummet by 32-33.5 percent in 2022 due to energy infrastructure damage.
The Ukrainian government, the European Commission and the World Bank estimated that the cost of reconstruction in Ukraine amounted to US$349 billion, which was more than 1.5 times Ukraine's GDP last year, with the figure expected to grow as the conflict rages on.
At the same time, Ukrainian government debt grew to US$103.1 billion as of the end of October. Borrowing to cover the budget deficit was the main reason for the hike, said Daniil Getmantsev, head of the Parliament's Committee on Finance.
In October, President Volodymyr Zelensky said that his country needed US$38 billion to cover next year's estimated budget deficit and US$17 billion to rebuild critical infrastructure. Half of Ukraine's energy infrastructure was damaged during 10 months of combat, he admitted.
Kiev "could be left without international reserves to pay for critical imports and unable to meet its foreign debt obligations," The Washington Post reported last week.
LIMITED IMPACT ON RUSSIA
Since the start of the conflict, Western countries have imposed rounds of finance, trade and energy sanctions, which Russian President Vladimir Putin said were aimed at crushing the Russian economy, wrecking the ruble and provoking devastating inflation.
Analysts say Russia has withstood the impact of sharp ruble depreciation and the departure of Western companies in droves, stabilized the financial system and preserved its economic order. Russia also benefits from selling its energy, which remains in broad demand.
"The contraction in Russia's economy is less severe than earlier projected, reflecting resilience in crude oil exports and in domestic demand with greater fiscal and monetary policy support and a restoration of confidence in the financial system," said the International Monetary Fund in its October World Economic Outlook.
One of the main goals of the Western sanctions was to limit Russia's access to oil and gas markets. But energy prices rose higher, allowing Russia to grow its coffers, said Valery Krutikov, professor of economics at Russia's Kaluga State University.
"This plan has failed. The Russian business community and government bodies worked in a well-coordinated and professional manner, and our citizens displayed unity and responsibility. The government, the Bank of Russia and the Russian regions have stabilized the situation by pooling their efforts," Putin told a government meeting earlier this month.
Putin said that Russia's gross domestic product is expected to contract by 2.5 percent in 2022, much better than a 20 percent decline previously forecast by many Western experts.
After a surge in March, inflation has stabilized since May, while the federal budget deficit is expected to remain at a low level of about 2 percent of the GDP this year and next year.
GLOBAL RECESSION FEARED
The European countries have been hard hit by the spill-over effects of the conflict, suffering under painfully high energy prices. As the share of Russian natural gas supply on the European market fell from 40 percent last year to 9 percent this year, European countries have been forced to buy much more expensive American liquefied natural gas.
Moreover, the soaring energy prices are forcing a large number of European energy-intensive plants to curtail or even terminate production, which is a sign of expanding deindustrialization in Europe. If the trend continues, the industrial structure of Europe may be eroded for good, industry observers have warned.
For the world economy, the Ukrainian crisis was the "single most important negative factor" this year, and likely the next, IMF Managing Director Kristalina Georgieva said.
In November, the Organization for Economic Cooperation and Development (OECD) predicted that the global economy would grow 3.1 percent this year and 2.2 percent next year. The IMF forecast that growth in 2023 would slow down to 0.5 percent in the eurozone.
World Bank President David Malpass warned that the Ukrainian conflict and its impact on food and energy prices and the availability of fertilizers could trigger a global recession. Meanwhile, with the fallout from the crisis wrecking havoc on the world, Washington is busy pocketing billions by selling massive weaponry and overpriced fuel to its European allies.
Since late February, European Union countries have pledged to beef up their arsenals by some US$230 billion, U.S. media outlet Politico reported in October. The American arms industry has been a significant beneficiary.
Eighty-seven cargo ships departed from U.S. ports in September carrying 6.3 million tons of liquefied natural gas, and almost 70 percent of that cargo headed to Europe, Refinitiv Eikon data showed. Each vessel can result in US$100 million of profit.