Ukraine Economic Consequences
CEPR News War in Ukraine

Press Release: Global Economic Consequences Of The War In Ukraine

Six months of war have caused extensive damage to Ukraine and have had a transformative impact on the world’s economic, financial, and geopolitical status quo. The effects have been wide-ranging and unequal among countries, contributing towards global food shortages, a European energy crisis, mounting geopolitical tensions, and rising inflation. In response to these extraordinary circumstances, CEPR set up a VoxEU debate which invited research contributions to assess and inform the evolving policy debate. This eBook, edited by Luis Garicano, Dominic Rohner, and Beatrice Weder di Mauro gathers a selection of the most pertinent of these submissions for an early stocktaking of lessons and to provide a first assessment of what might lie ahead.

The impact of the war on Ukraine has taken a heavy toll, with estimated civilian and military casualties reaching into the tens of thousands. Beyond the lost lives and injuries, the economic losses are enormous and they take many forms:  

  • Analysis shows that private consumption in Ukraine has fallen by 25-30%.  
  • To fund the war, the Ukrainian government has implemented an inflation tax, along with loans, grants, and central bank financing.  
  • Financial support from the West is falling short and, as one chapter warns, the result is a looming macroeconomic crisis.  
  • Analysis of past conflicts shows that schooling and human capital losses are likely to have persistent effects, which need to be addressed immediately.  

Other chapters discuss the economic consequences of sanctions, which were widely and aggressively implemented by Ukraine’s allies. The analysis reveals doubts about the overall effectiveness of sanctions, details Russia’s response, and assesses the best route forward to limit European imports of Russian oil and gas.  

Further analysis reveals the impact of the war on world trade and supply chains, highlighting the economic damage caused by global trade disruptions and the uncertain future of the international trade regime. Disruptions to trade with Russia have a global impact through price hikes, notably for energy goods, which affect transportation costs and virtually all global value chains. Looking ahead, there is an elevated risk that supply chains are likely to remain permanently altered by the conflict, away from Ukraine and Russia. Policy objectives should focus on strengthening the resilience of supply chains, refraining from restricting trade, and reversing the omission of Ukrainian firms from global value chains. 

The research also emphasises the unequal impact on developing countries, which face increasing food and energy insecurity because of the conflict. Simulations reveal potential welfare losses of up to 10% for the poorer 40% of the population in countries such as Armenia. The burden is large, and the South is disproportionately impacted, with estimates of drops in real income of around 1% of GDP across developing countries, a situation further exacerbated by an anticipated decrease in financing. Overall, the research raises considerable concern for low-income countries, especially net food and energy importers, which could experience food riots and an increase in inter-group conflict.  

Final chapters consider the long-run impact on multilateralism and the global order. Authors stress the need to preserve the current trading system and avoid regional divisions. In Europe, analysts warn that any increased unity will be put under pressure by the costs of a prolonged war, winter energy insecurity, spiralling energy prices, and inflation.  

While many uncertainties remain, this analysis provides useful policy insights into a broad range of key issues affecting Ukraine and the global economy. Containing the current economic fallout and limiting future damage is imperative. 

For more information, and to reach the authors, please contact
CEPR Press Officer Alexander Southworth.