Energy, agriculture, inflation, poverty … The war in Ukraine will also have major consequences on Eastern Europe and the world and a slowdown in global growth is likely, explains to Agence France Presse the head of European Development Bank (EBRD) economist, Beata Javorcik.
How much will it cost to rebuild Ukraine?
“It will depend on the duration of the war (which has been going on for three weeks already). Large parts of the country are working – infrastructure, banking system, businesses are still open. A figure of 100 billion dollars comes from the Ukrainian government (…) and corresponds to the cost of infrastructure and buildings already destroyed. This is the equivalent of two thirds of the GDP. This shows that the economic cost will be significant even if it is too early to give figures. (The IMF has estimated that Ukraine’s GDP will contract by around 10% minimum in 2022, editor’s note).
How much the conflict retards the development of Ukraine will depend on the stability of the country and therefore on the agreement reached for the resolution of the conflict. And also aid and investments from other countries. Ukraine has a free trade agreement with the European Union. This means that Ukraine has access to the (vast) European market. The EBRD (which released 2 billion euros in emergency aid for Ukraine) can also play a role in co-investing in the private sector. We serve as a seal of validation. »
What will be the impact of the influx of refugees in neighboring countries?
“If the conflict continues, the number of refugees could reach six million people. It is enormous and difficult to manage for the host countries. But at the start of the fall, labor markets in central Europe were bubbling with very low unemployment (which could facilitate the integration of Ukrainian refugees). »
How will the sanctions weigh on Russia?
“There are two aspects to the sanctions. A short-term cost that will result from the loss of international trade, the loss of consumer confidence, the ruble depreciating…etc. If after the end of the conflict, Russia is perceived as a risky destination, if there are nationalizations – we have heard statements (from Russian President) Vladimir Putin – it will damage Russia’s reputation as an investment destination . If the sanctions on exports of high-tech products continue, access to the knowledge that comes from these goods is lost, and this could lead to an attrition of the movement of scientists and students to and from Russia. »
What will be the impact on the global economy?
“This conflict will reverberate around the world and its consequences will be felt not only this year but next year at least. Russia and Ukraine account for 30% of world wheat exports. Ukrainian farmers have yet to sell their harvest from last year. Black Sea shipments are disrupted, and more importantly, Ukrainian farmers are still not sowing. In addition, Russia and Belarus are producers of ammonia and potash, which are components of fertilizers. So fertilizer prices are going up, which is affecting farmers in Asia and the United States.
Nickel, copper, platinum, palladium, all exported from the region, are components used in renewable energies. (They have seen their prices soar since the start of the conflict because of supply risks, editor’s note). The price of gas is at record levels in Europe and oil prices are very high, which makes coal relatively cheap and therefore the incentives to stop using (this very polluting fuel) could decrease.
All of this will accelerate inflation, with more serious consequences for the poorest countries, which has implications for poverty and political stability. Rising inflation will also force central banks to react by raising interest rates (as some have started to do) which will be bad for the growth of the global economy. A slowdown is likely. »