Nearly four months ago Russia invaded Ukraine and since then the western world has been watching real images of war in Europe, something that we could never imagine before February 24th 2022, the day the invasion started. With this article, my main objective is to reflect on what could be the possible outcomes of this war for the Ukrainian economy.
Firstly, on the 3rd of May 2022, more than two months after the invasion, Ukraine estimated the amount of money needed to rebuild Ukraine after the war, was around $600 billion1. Since then, the war continued, and the destruction of entire cities did not stop. So we can expect the final outcome of this war to be significantly worse. Secondly, Ukraine can loose thousands of lives and the number of refugees can reach up to tens of millions, with most of them being women and children. It is thus clear the devastating effect on the country’s labor force. Lastly, it was reported that a large share of Ukraine’s land is trapped with landmines, meaning that agriculture production will not return to pre-war levels (around 9% of Ukraine’s GDP in 2020) until a large-scale operation is taken place to remove the mines after this war.
I consider the two most probable scenarios for this war to be: one where Russia annexes the Luhansk and the Donetsk regions (which were already partially held by separatist groups before the war) and the other where Russia annexes both of these regions and also Zaporizhia and Kherson regions. The latter scenario would give Russia larger access to the Black Sea and leave Ukraine with only Odessa and Mykolaiv to access it. If we take a look at the share of GDP that these regions represent, in the first scenario, in which case Ukraine loses the Luhansk and Donetsk regions, the country would only loose 1% and 5% of the country’s GDP, respectively, in 2019. In the second scenario, if we add Zaporizhia (3.9%) and Kherson (1.6%) to the list, Ukraine loses a territory with a combined GDP of 11,5% of GDP in 2019, even though Russia is occupying nearly 20% of the country’s territory. Taking into account that the Ukrainian GDP was around $153 billion before the pandemic, the $600 billion needed for the country’s reconstruction represent around four years worth of GDP in the first scenario and four and a half years worth of GDP in the second scenario, (assuming that after the war, the country could produce constantly the same it produced before the war and that everyone is working on its reconstruction, which is clearly unrealistic, meaning that these numbers are largely under-estimated).
In conclusion, besides the human lives lost that are irreparable, without foreign funding, the material damages that Ukraine is suffering are going to last years if not decades after it is over. Fortunately for Ukraine, there are entities from inside and outside Europe willing to fund the reconstruction, namely the European Commission. In specific, the European Commission president, Ursula Von Der Leyen suggested Ukrainian reconstruction to be funded using Russian frozen assets.
N. (2022, May 24). Von der Leyen: EU may use Russian assets for reconstruction of Ukraine. EU NEIGHBOURS East. https://euneighbourseast.eu/news-and-stories/latest-news/von-der-leyen-eu-may-use-russian-assets-for-reconstruction-of-ukraine/Strupczewski, J. (2022, May 23).
Exclusive: Four EU countries call for use of Russian assets to rebuild Ukraine. Reuters. https://www.reuters.com/world/europe/exclusive-four-eu-countries-call-use-russian-assets-rebuild-ukraine-2022-05-23/In-text citation
Ukraine Stats. (2022). Ukraine Stats. http://www.ukrstat.gov.ua/operativ/operativ2021/vvp/kvartal_new/vrp/arh_vrp_e.html
Student of the Bachelor’s Degree in Economics
Nova School of Business and Economics