Russia’s war may halve Ukraine’s economy, increasing budget deficit by billions

After Ukraine ended 2021 with a historically high gross domestic product (GDP) of $195 billion, top officials issued optimistic forecasts for the coming year.

Then the war began, killing all of the country’s economic plans.

As of late April, the Russian military has destroyed 30% of Ukraine’s infrastructure, causing $100 billion worth of damage.

Total losses to the economy, both direct and indirect, have already reached over $560 billion, according to the head of President Volodymyr Zelensky’s office, Andriy Yermak.

Russia’s full-scale invasion has forced more than five million people to flee Ukraine. Around 60% of small- and medium-sized businesses are currently closed or suspended.

According to World Bank estimates, Ukraine’s economy will contract by 45% in 2022.

“This is already terrifying,” said Deputy Director at the Center for Economic Strategy Maria Repko. “This means that we no longer have a third of our economy.”

According to Ukraine’s State Statistics Service, inflation in Ukraine may quadruple to 15-20% by the end of the year.

The blocked ports of the Azov and Black seas killed maritime shipping and cut half of the country’s exports, as well as 90% of grain trade with foreign countries.

As of early May, around 4.5 million tons of grain were stuck at Ukrainian ports, according to Martin Frick, the World Food Programme director in Germany.

“(Logistics) were ruined. Old supply chains through the ports are not working and won’t resume operation in the nearest future,” said Repko.

In March, Ukraine exported just 5.97 million tons of goods worth $2.7 billion. Imports fell by two-thirds to 1.6 million tons worth $1.8 billion due to an unprecedented decline in consumer demand.

Russia’s invasion is already “sending shockwaves throughout the globe,” according to Kristalina Georgieva, managing director of the International Monetary Fund.

“The economic consequences from the war spread fast and far, to neighbors and beyond,” Georgieva said during her curtain-raiser speech to the IMF–World Bank Spring Meetings.

Russia’s war will be among the top reasons for the decline in global growth this year and the next, she said. The Fund will downgrade their forecasts for 143 economies, which account for 86% of global GDP.

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