2 years of war: Russia-Ukraine conflict exacts stinging economic costs

By Gokhan Ergocun

ISTANBUL (AA) — Two years on, the casualty count from Russia's war on Ukraine numbers in the tens of thousands, while many more lives have been uprooted and entire cities left in shambles.

The material damage caused by the war, which Moscow launched on Feb. 24, 2022 as a "special military operation," is estimated in the hundreds of billions of dollars.

According to a recent report from the International Rescue Committee (IRC), some 14.6 million Ukrainians are estimated to be in need of humanitarian assistance as of this year, including the 3.7 million internally displaced.

The report showed that over 4,000 attacks on education facilities and over 1,300 attacks on healthcare have been recorded since February 2022, while over 1.5 million homes have been destroyed.

The UN also forecasted in December that the total cost of reconstruction and recovery in Ukraine is now at around $486 billion, up from the previous estimation in 2022 at $411 billion.

The IRC report revealed that an area the size of Romania is now riddled with landmines and that the explosion of the southern Nova Kakhkova dam in June left 600,000 hectares of arable land without irrigation.

According to the Kyiv-based Centre for Economic Strategy (CES), the unemployment rate in Ukraine, which was at around 10% before the war, rose to over 30% during the conflict before declining down to its current 17%.

Hunger has also been a significant concern throughout the war, with food insecurity — rising to up to 30.3% — now at 19.2%.

Exports and imports had been at similar levels at roughly $7.5 billion in January 2022. But the balance collapsed after the war began, with the trade balance trailing at negative levels. As of December, it was at minus $3.7 billion.

Grain exports were hit particularly hard by the war before, rebounding to nearly pre-war levels with the signature of the Black Sea Grain Deal, brokered by Türkiye and the UN, in July 2022. The deal, initially set for a period of 120 days, was renewed several times, before Russia eventually pulled out in July 2023.

Ukraine's annual inflation rate, 10% in January 2022, saw 26.6% in October 2022 and is currently at 4.7%.

After growing 6.3% in the last quarter of 2021, the country's economy contracted 14.9% in the first quarter of 2022, 36.9% in the second quarter, 30.6% in the third, and 31.4% in the last quarter.

After declining 10.3% in the first quarter of 2023, the Ukrainian economy posted its first positive GDP growth rate — 19.5% — in the second quarter of 2023. It remained in the black with 9.3% in the third quarter and 6.5% in the last quarter, according to the CES' estimations.

"In 2024 alone, Ukrainian authorities estimate the country will need around $15 billion for immediate reconstruction and recovery priorities at both the national and community level, with a particular focus on supporting and mobilizing the private sector alongside restoration of housing, soft infrastructure and services, energy, and transport," the World Bank has said recently.

The bank added that from the beginning of the war to the end of last year "direct damage in Ukraine has now reached almost $152 billion, with housing, transport, commerce and industry, energy, and agriculture as the most affected sectors."

- Russian side

Annual inflation in Russia, which was at around 9% before the war, has been hovering at 11-17.8% in the first year of the conflict.

After this period of double-digit inflation, it fell as low as 2-3% due to the base effect and interest rate hikes by the country's Central Bank. It has been gradually increasing since a 2.3% reading April to 7.4% in January.

The Central Bank has lowered its interest rate from 20% to 7.5% level from March to September 2022 but had to increase the rate gradually after July last year to 16% as of December.

The country's credit default swap (CDS) risk premium, long-flat before the war at around 200, has skyrocketed to about 13,800.

A recent Pentagon estimate, according to Japanese public broadcaster NHK, has placed the cost of the war for Moscow at $211 billion so far to equip, deploy, maintain, and sustain operations in Ukraine.

It also estimated that the Russian army had incurred 310,000 military casualties, while Ukrainian forces have sunk, destroyed, or damaged at least 20 medium-sized or larger Russian Navy vessels.

Besides military spending, the Russian economy has been hit by Western embargoes and measures, with the EU imposing its 13th package ahead of the war's second anniversary.

Russian Central Bank reserves, at over $320 billion, have been blocked since the beginning of the war by Brussels, along with G7 countries and Australia.

In addition, 70% of Russian banking assets and around €20 billion (over $21.6 billion) of assets of more than 1,500 people and entities are under Western sanctions, according to a report the European Council released in May.

Russia's exports during the last year fell by 28.3% to $425.1 billion, down from $588.3 billion, while its exports to Europe plunged 68% to $83.9 billion.

Imports were at $280.4 billion in 2022 and at $285.1 billion last year.

After Russia started its "special military operation" against its neighbor, many sectors and countries announced sanctions or suspensions against the country.

Some companies stopped operations and deliveries in Russia, while others ended investments or withdrew partnerships there and in Belarus.

The national defense budget's share in the total government budget was up 23% from 21% in 2022 and 20% in 2021. The country's military expenses continued to increase in 2023 and 2024.