Russia and Ukraine war has impacted the global economy at large with pushing the whole economy towards depression, with a minimal growth of 0.3% expected in 2023. Wars destroy human and physical capital, shift resources to less efficient uses, divert international trade and capital flows, and disrupt global supply chains.
Ukraine’s economy is now projected to contract by 35% this year although economic activity is scarred by the destruction of productive capacity, damage to agricultural land, and reduced labor supply as more than 14 million people are estimated to have been displaced.
"Russia’s invasion of Ukraine has triggered one of the biggest human displacement crises and exacted a heavy toll on human and economic life,” said Anna Bjerde, World Bank Vice President for the Europe and Central Asia region.
Adverse geopolitical events may further weigh on economic activity by delaying firms' investment and hiring, eroding consumer confidence, and tightening financial conditions.
The war has disrupted the routes of China-Europe which has impacted on increasing the freight cost for all modes of transportation. The train route connecting the regions, which became highly competitive during the height of COVID-19, especially for industries valuing shorter lead times such as automotive and electronics, is now stalled. This is especially true for the primary corridor that traverses Russia, Belarus, and Poland before continuing on to Germany, France, and other European countries.
With the war not getting stop any time sooner it has weaken the global economy with creating disruptions in trade and food and fuel price shocks, all of which are contributing to high inflation and subsequent tightening in global financing conditions. The war has highly impacted the energy prices due to the reductions in Russian energy supplies.
The invasion has hitted the developing countries at large where medium and high reliance on natural gas imports for heating, industry, or electricity as well as the countries closely connected with EU energy markets. Commodity prices and oil prices increase, putting downward pressure on global activity and upward pressure on inflation.
Countries in Europe, and especially those that are in proximity to the conflict, are the most exposed. Roughly 80 percent of firms in Finland and Poland, countries sharing a border with Russia or Ukraine, are concerned about the war.
Rising energy prices are also pushing agricultural costs higher, contributing to increasing food prices globally. The share of direct and non-direct energy costs can account for 40% to 50% of total variable costs of cropping in advanced economies such as US.
The war has caused a downfall in the Russian stock market, measured a crash of 39% on the first day of the invasion with recovering over 26% in the following day; however, on 28 February, a Monday, the Moscow stock exchange closed for the day because of the "developing situation”.
The fact that Russia is the largest trading and economic partner for post-soviet states in Central Asia and a major destination for millions of CIS's migrant workers, Central Asia has been particularly hard hit by sanctions against Russia.
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