Bloomberg Línea — “This senseless war has reverberated around the world,” UN High Commissioner for Human Rights Volker Türk said on February 21, referring to the human cost of Russia’s invasion of Ukraine, a phrase that can easily be scaled to the global economic aspects that the war has also impacted.
Türk said that since February 24, 2022, figures and events make it “more difficult to find a path to peace.”
- Since the beginning of the war 8,006 civilians have been killed
- 13,287 Ukrainian civilians have been wounded by Russian attacks
- 487 children have been killed and 954 wounded
The UN office said long-range explosive weapons, ballistic missiles and air strikes caused about 90.3% of the total civilian casualties.
This toll comes as Russian President Vladimir Putin said on Tuesday that he will press ahead with the invasion of Ukraine and suspend his observance of the New START Treaty with the US, which limits countries’ nuclear arsenals, following President Joe Biden’s surprise visit to Kiev.
But the human cost of the war also relates to nearly 18 million people who require humanitarian aid, and another 14 million who have been displaced from their homes.
The humanitarian crisis is further compounded by the fact that the Ukrainian economy has completely deteriorated and funds are insufficient to care for those affected by the conflict.
UNICEF said this week that:
- 80% of its respondents have suffered a deterioration in their economic situation
- 82% of Ukrainian children are now living in poverty
All this while Ukraine’s Gross Domestic Product (GDP) fell by more than 30% in 2022 and its budget deficit reached almost 27% of GDP, Bloomberg reported.
In addition, the Kiev School of Economics (KSE) estimated that the destruction of the country’s physical infrastructure reached US$ 137.8 billion in December 2022, with US$ 13 billion damage to physical assets of Ukrainian companies.
Meanwhile, the UK Ministry of Defense estimated at the close of the previous week that there are between 175,000 and 200,000 Russian soldiers killed or wounded since the beginning of the invasion, with a death toll of close to 60,000.
The economic impact of the war
Despite the having dragged on for a year, Russia’s economy contracted by only 2.1% in 2022, less than the 3% contraction expected by analysts of the Russian Federation’s preliminary results.
The country’s inflation was 13.8% and its budget deficit was 2.0% in 2022, Bloomberg reported.
And although the Russian government has avoided a collapse of its economy, despite international sanctions and price caps imposed on crude oil, Bloomberg Economics estimates that Russia’s GDP will shrink by $190 billion by 2026.
Against this backdrop, the International Monetary Fund (IMF) stated in January 2023 that Russia’s war in Ukraine will continue to be a factor holding back the global economy this year, as it did in 2022.
The war, along with high interest rates imposed to combat high inflation also produced by the conflict, will cause “global growth to decline an estimated 3.4% in 2022 and 2.9% in 2023″ while inflation levels would go “from 8.8% in 2022 to 6.6% in 2023″, according to the IMF’s World Economic Outlook.
The costs of addressing the humanitarian crisis and military aid
Much of Ukraine’s resources over the past 12 months have gone to two fronts: the war effort and attending to 5.9 million people who have been displaced within the country, while around 7.9 million people have fled the country.
US Vice President Kamala Harris said on Saturday that Russia committed “crimes against humanity” by invading Ukraine, echoing the opinion of multiple heads of state and officials around the world.
Joe Biden’s administration has committed $29.8 billion in military aid to Ukraine since February 24, 2022, according to the Department of Defense, while providing more than $1.28 billion in humanitarian assistance.
Biden promised to stand by Ukraine “as long as it takes” during his surprise visit to Kyiv early Monday morning. Recently, Ukrainian Foreign Minister Dmytro Kuleba assured that Ukraine will receive between 120 and 140 Western tanks, after NATO and the United States sent heavy weapons.
Meanwhile, the European Union has committed $71.3 billion in the same period, between assistance from the organization and its member states. Of this, $40.2 billion has been in economic aid; $18.1 billion in aid to refugees, and $ 12.7 billion in military aid.
Some Latin American countries have also pledged humanitarian assistance, such as Argentina, which has sent medical supplies.
The impact on the supply chain and global trade
“The conflict in Ukraine has replaced the pandemic as the main driver of pressure on international trade: for the first time in 25 years, world trade will grow at a lower rate than global GDP over the next decade, and there will be changes in traditional trade patterns,” said Boston Consulting Group (BCG) in its recently published report Protectionism, Pandemic, War, and the Future of Trade.
The consulting firm expects world trade to grow at a rate of only 2.3% per year through 2031, less than the 2.5% per year predicted before the war.
The report also highlights decisive changes in international trade relations, alongside the disruption of trade between the European Union and Russia, over the next nine years the EU is seen increasing its trade with the US by $359 billion, driven in large part by increased US energy exports to Europe.
Sanctions on Russian assets and oil
The sanctions imposed by governments and authorities on the Russian economy and its billionaires are unprecedented in modern history. Bloomberg Economics points to an estimated $300 billion of blocked international reserves, including asset seizures targeting people close to Putin.
The war in Ukraine has also led to an increase in the price of oil worldwide, touching highs of up to $108 per barrel of the Brent reference, an escalation that sought to be controlled by the EU and the G7 since last year through sanctions, such as the price cap for Russian oil exported to other countries at a level of $60 per barrel.
This same sanction caused the Kremlin to decide in early February to cut 500,000 barrels per day of its production, a measure that will take effect as of March and, as a result of which, so far, OPEC+ has not yet indicated that it will increase its production.
In addition, the G7 and the EU are still discussing putting a price cap on Russian diesel. The EU proposes a maximum of $100, while the G7 suggests a range of $100-$110 per barrel.
Corporate moves in Russia, a long-term game
When the war started in February 2022, multiple companies took the decision to withdraw from the Russian market in retaliation for Putin’s aggression.
The Kiev School of Economics (KSE) notes however that the “exit” effect remained almost “unchanged” from March 2022 to the middle of February 2023.
As of February 12, 3,079 companies and their brands from 88 countries, in 57 industries, were still operating in Russia and, of those, 1,400 are public companies.
“Of that total, 1,665 foreign companies have reduced, suspended or ceased operations in Russia. And specifically, 191 companies have completed the sale of their business in Russia,” according to the KSE’s compilation of official records.
According to the KSE, 38% of foreign companies have already announced their withdrawal from the Russian market or suspended their activity, “but another 39.7% still remain in the country, 16.1% are waiting and only 6.2% have made a complete exit.”
Russia’s war in Ukraine will remain one of the factors that could drive down global economic growth in 2023, according to the IMF, in the event of an escalation of the conflict. The EU and lower-income countries have the highest exposure and vulnerability to the effects of the conflict, it said.