Ukraine war has had a ‘profound economic impact’ says insolvency expert

“12 months on from Russia’s invasion of Ukraine, there appears to be no end in sight. Millions of Ukrainians have been forced to flee their homes and thousands are losing their lives. But the economic impact has also been profound, with repercussions likely to be felt globally for years to come.

“Although not the primary cause, the global rise in inflation has been aggravated by the war. Back in January 2022, we expected global trade to grow by about 5.5% that year and 3.5% in 2023, figures that reflect post-lockdown, pre-war optimism. However last month the estimated figure for 2022 was about 3% and our forecast for 2023 just 1.5%.

“Needless to say, Russia and Ukraine have taken the biggest hit. Russia´s economy is estimated by Oxford Economics to have contracted 2.3% in 2022, while Ukraine’s shrank a whopping 30.1%.  As of January 2023, this year’s GDP growth forecasts for Russia and Ukraine are -2.0% and -4.6% respectively.

“Russia is also a major supplier of oil and gas, especially to Europe. That supply has fallen by 80% since the start of the war, and while European gas prices have fallen back from their 2022 peak, they are still four times higher than the pre-war figure, with significant supply disruption expected to continue in 2023.

“Energy price hikes also raise food production costs, exacerbating a shortage of supply. Together, pre-war Russia and Ukraine accounted for about 30% of global exports of wheat, 20% of corn and barley and 13% of fertiliser.

“Food prices were rising before the war, but the conflict supercharged that trend. Wheat prices were 30% higher in June 2022 than six months previously. An UN-brokered deal led to the resumption of grain exports from Ukraine, but prices remain 20% higher than a year ago. Both countries also supply important commodities. For example, Russia is a major supplier of nickel, used in battery manufacture. Pre-war, Ukraine produced 50% of the world’s refined neon, used in the production of semiconductors.

“As new trade patterns settle and a new normal emerges, some of the war’s sharpest impacts may ease. But if the war drags on, the global economy will continue to be battered by its direct and indirect consequences.”

James Burgess, Head of Commercial at Atradius UK