Thursday, 24 February 2022 was a turning point in European history. Overnight, Russia launched a brutal war of aggression on Ukraine, an independent European nation. Two years after the start of the war, its negative effects have been far-reaching. In addition to the harrowing human cost of the war, the economic impact has been devastating in Ukraine itself, but also substantial for the European Union and the world more widely. In the EU, the economic recovery following the COVID-19 pandemic has been slower than expected because of the war in Ukraine. The European Commission's 2021 Autumn Forecast predicted 4.3 % growth in gross domestic product (GDP) for the EU for 2022, and 2.5 % for 2023, but growth finally registered at 3.5 % for 2022 and an estimated 0.5 % for 2023. The EU also experienced a severe energy and a cost-of-living crisis in 2022, with ripple effects that are still being felt today. The increasing price of energy resulted in exceptionally high inflation figures in autumn 2022, especially in October 2022. This created difficult framework conditions for both EU citizens and companies. Furthermore, to bring inflation down to the 2 % target level, the European Central Bank began to raise its interest rates, with considerable impact, particularly on citizens and companies with large variable-rate loans. This briefing looks at the economic impact Russia's war of aggression on Ukraine has had on the European Union over the last 24 months, and analyses how the European Council has responded to limit the negative economic effects of the war. EU leaders followed the developing situation closely and reacted immediately to the Russian attack in February 2022. In addition to sanctions prepared in coordination with EU allies, the EU leaders also tasked the European Commission to prepare contingency measures. At an informal meeting in Versailles, EU leaders adopted a declaration in which they stressed the need to strengthen the EU economic base and the single market. They also took steps towards encouraging open strategic autonomy, aimed at allowing the EU to stand on its own two feet in the new and rapidly changing geopolitical situation. Since then, Russia's war of aggression in Ukraine and its impact have been rolling agenda items at European Council meetings. Furthermore, the EU and its Member States have supported Ukraine and Ukrainians with almost €88 billion (figures from January 2024), including financial, economic, diplomatic, humanitarian and military aid. At its December 2023 meeting, the European Council decided to open accession talks with Ukraine.
FAQs
What is the impact of Russian Ukrainian war on the European economy? ›
By analysing the economic impact of the invasion on the countries of Europe, it was found that the main negative effects are associated with rising oil and natural gas prices, global inflation and rising costs of living, disruption of supply chains, effects on the banking system and stock markets, and a decline in ...
How was Russia's economy affected by Ukraine war? ›Two years after its full-scale invasion of Ukraine, Russia is still facing an unprecedented number of economic sanctions. It has been excluded from major global financial services, and around €260 billion (£222 billion) of its central bank assets have been frozen.
How has the Russian invasion of Ukraine impact European energy supply? ›In 2022, the price of fuels in the EU increased dramatically as a consequence of Russia's unprovoked and unjustified aggression against Ukraine, which also led to concerns related to the security of energy supply. Russia's decision to suspend gas deliveries to several EU member states further impacted the situation.
What impact did the war have on the economy of Europe? ›Increased government spending: Governments had to allocate substantial resources to fund the war effort. This led to increased government spending and higher levels of debt. As a result, resources that could have been invested in other sectors of the economy were diverted to military purposes.
What are the economic effects of war? ›Public debt and levels of taxation increased during most conflicts; • Consumption as a percent of GDP decreased during most conflicts; • Investment as a percent of GDP decreased during most conflicts; • Inflation increased during or as a direct consequence of these conflicts.
How does the Russian Ukraine war affect the stock market? ›The response across financial markets was dire. In a month, the Dow Jones and the S&P 500 fell by 35% and the volatility of the financial markets was comparable to the 2008 GFC (Baker et al., 2020).
How is Russia's economy doing now? ›The Russian economy is shrinking
It is estimated that in 2022, Russia's gross domestic product (GDP) dropped by 2.1%. Russia's economy may continue to shrink in 2023. Its GDP is forecast to decline by 2.5% in the worst-case scenario (OECD) or by 0.2% according to the World Bank. The IMF expects growth in 2023 (0.7%).
Ukraine lost $19.4 billion in exports, while Russia gained $68.3 billion. Russia realized trade gains of $41.1 billion in Asia. The war had limited trade implications for not directly involved countries. Global market adjustments operated mainly through increased commodity prices.
How is Ukraine's economy right now? ›Ukraine Remains Resilient
The pace of recovery in Ukraine is projected to slow to 3.2% this year from 4.8% in 2023, reflecting a smaller harvest and persistent labor shortage. The country's economic outlook remains conditional on donor support and the duration of Russia's invasion.
Supply chains, which were already under strain due to the COVID-19 pandemic, have also suffered from the effects of Russia's war. In addition to energy and food discussed earlier, many raw materials and goods such as fertilisers and chemicals have been impacted.
What are the effects of the Russia and Ukraine war? ›
Russia's attack on Ukraine placed a further squeeze on critical commodities – food and energy. This was the result of reduced output from both countries and sanctions on Russia. Costs climbed even further, triggering inflation rates that far outpace wage growth.
Why did gas prices go up after Russia invaded Ukraine? ›Russia's invasion of Ukraine drove unprecedented turmoil in international gas markets, with supply restrictions, sanctions and sabotage contributing to record wholesale prices and significant volatility.
How does the war in Ukraine affect the economy? ›The war has contributed to volatile and elevated commodity and energy prices, which exacerbated food shortages and stoked inflation in many regions across the world.
What happened to Europe economically after the war? ›The post-war economy initially declined as food rations, fuel shortages, and critical infrastructure damage abounded. However, as a result of the Marshall Plan and other economic aid programs, the European economy was able to recover.
What are the economic issues related to the European Union? ›Inflation has started to decline but is too high, above the 2% target. Labour productivity is stagnating, or even declining in the main countries of the euro zone notably due to the cyclical downturn, lack of productive investment and insufficient innovation. Growth prospects in Europe for 2023 and 2024 are weak.
What was the effect of the Ukraine war on Europe tourism? ›Then Russia invaded Ukraine and brought new international bookings to a grinding halt. In the first week of the war alone, airline bookings within Europe fell by 23 percent and trans-Atlantic bookings to European countries fell by 13 percent, according to the travel data company ForwardKeys.
What are the global implications of the Russia-Ukraine war? ›Russia's invasion of Ukraine has altered geopolitics, initiating significant military-security, political, and economic changes in different parts of the world, including in Europe, Eurasia, and the United States, as well as across developing economies.
How did the Russian Ukraine conflict affect trade? ›Ukraine lost $19.4 billion in exports, while Russia gained $68.3 billion. Russia realized trade gains of $41.1 billion in Asia. The war had limited trade implications for not directly involved countries. Global market adjustments operated mainly through increased commodity prices.
What is the GDP of Russia vs Europe? ›Let us compare the EU with Russia on these measures. Economically, with its combined GDP of approximately $17.18 trillion, the EU far outstrips Russia's $1.78 trillion. The bloc also races ahead of Russia in the high-tech components of its economy, which is pivotal for future development.