Three months after Russia’s invasion of Ukraine, it is becoming increasingly clear what devastating consequences the war is having on the country’s economic fabric. A long war could make Ukraine the poorhouse of Europe. A reconstruction will consume gigantic sums of money.
“It doesn’t look good,” says Klaus-Jürgen Gern from the Kiel Institute for the World Economy (IfW) about the economic situation in Ukraine to FOCUS Online: “Important industrial areas are contested or destroyed.” The Donbass or the region on the Djnepr, for example, where the Ukrainian coal mining and steel industries are at home. The majority of Ukraine has been spared direct combat operations. But the longer the war lasts, according to IfW researcher Gern, the more difficult it becomes for all Ukrainian companies to continue producing. Personnel, material and energy could then become even scarcer.
Always informed: The course of the war in Ukraine in the ticker – attack on the Russian occupying mayor in the south-east of Ukraine
The infrastructure also poses a problem for the country’s economy: According to Ukrainian Infrastructure Minister Alexander Kubrakov, around 30 percent of the roads, railways, airports and public buildings alone have been damaged or destroyed. More than 300 road bridges and more than 8,000 kilometers of roads need to be repaired or renewed. According to Kubrakov, the estimated costs for reconstruction alone will amount to more than 90 billion euros. And there is still no end in sight to Russia’s brutal war of aggression.
Russian artillery shelling of Ukrainian cities continues unabated. The south and east of the country in particular threaten to become an uninhabitable wasteland of rubble the longer the war lasts. “In most areas of the state, trade, commerce, services and administration are still functioning,” says Klaus-Jürgen Gern. But in the east and south of the country, the wheels are largely standing still in Ukrainian businesses and companies.
In total, around 25 percent of the companies are closed. Especially in the contested areas. In addition, staff is becoming scarce: According to UN figures, around eight million people are fleeing within Ukraine. Around six million have completely turned their backs on the country since the beginning of the war. Around a third of the approximately 44 million inhabitants have left their homeland. Thousands of civilians have also died as a result of the Russian attack.
The International Labor Agency estimates that 4.8 million jobs have been lost in Ukraine, and the number will rise to 7 million if the war continues. Will the refugees then return? After many months of war, many Ukrainian children will have settled into the new schools abroad, numerous mothers will integrate into their new world, and both will be waiting for their husbands and fathers. Some refugees will of course return to Ukraine, but many will prioritize the well-being of their families and their children’s opportunities in the West over patriotism.
Salaries, commercial sales and tax revenues are plummeting. President Volodymyr Zelenskyy recently put Ukraine’s monthly budget deficit at around five billion euros. In addition, the most important trading partner for Ukraine to date is now completely absent: Russia. In terms of exports, Russia accounted for around 9 percent, followed by China with around 8 percent and Germany with around 6 percent. In terms of imports, China is Ukraine’s most important partner with an import share of around 13 percent, followed by Russia with around 12 percent and then Germany with an import share of around 10 percent.
The blockade of the Ukrainian Black Sea ports – Mariupol, Odessa, Kherson and others – by the Russian Navy prevents both the import of fuel to supply the agricultural sector and the export of grain and other Ukrainian products. The trade blockade is costing the Ukrainian economy around 150 million euros a day. “According to estimates, foreign trade has collapsed by up to 70 percent,” confirms Gern from the Kiel IfW.
Couchsurfing in Russia: How I almost became a Putin understander
According to calculations by the International Monetary Fund (IMF), the Ukrainian economy will probably slump by 35 percent this year. Other estimates go up to 50 percent. Gladly: “That now depends on how long the war lasts.”
The situation is uncertain: It remains doubtful whether agriculture will be able to sow and harvest undisturbed this year. It could also become precarious when it comes to heat supply for the bitterly cold Ukrainian winters, because Russian gas is not only becoming scarce for Western European countries, but also for the Ukrainian gas storage facilities, which now also have to be filled up. In addition, the Russians have destroyed gas pipelines and distribution stations in various parts of the country, as reported by the Ukrainian gas supplier Naftogaz. Many large cities are also affected: Mariupol, Kharkiv and the cities around Kyiv, which were occupied by the Russians for weeks. With the onset of winter, the next humanitarian catastrophe threatens.
How long will the war go on? How much longer can Ukraine resist? Experts estimate that Ukraine has lost around 30,000 soldiers since the invasion on February 24 – up to 11,000 dead and 18,000 wounded. After more than two and a half months of war, Ukraine’s losses amount to more than 10 percent of its now undoubtedly exhausted army of less than 250,000 men. The Ukrainian military leadership does not have concrete numbers, but the number of wounded could be much higher. Military officials estimate a dead-to-wound ratio of 1 to 2.5.
Also read: Possible Russian Losses – Calculations by Military Experts: Half of Putin’s Soldiers Could Be Dead or Wounded
With arms deliveries from the West and its guerrilla tactics, Ukraine will probably be able to continue the war against Russia for many months to come. But large parts of the country will become uninhabitable in the long run and no longer be farmable.
And it is also clear: Russia now controls significantly more Ukrainian territory than before February 24 (see chart), even if it has probably lost significantly more soldiers and material than Ukraine.
Putin’s army holds Kherson, the remnants of Mariupol, everything in between, and now not just Luhansk and Donetsk, but the entire Donbas region (oblast). For example, while Ukrainian authorities controlled about 60 percent of Luhansk before the recent Russian invasion, Russian forces now occupy over 80 percent of the region. They have also conquered about 70 percent of the Zaporizhia region. Overall, the number of territories occupied by Russia has more than doubled from around 7 percent (including Crimea) before February.
And Russia, despite all its military shortcomings, has staying power and large reserves. Harald Kujat, the former inspector general of the Bundeswehr, told FOCUS Online: “It is clear that we overestimated the Russian armed forces at the beginning of the war. But now we should not make the mistake of underestimating them.”
And so far there has been no indication from the Russian side that gives hope for an end to the war in the foreseeable future.
Either way, Ukraine needs help for reconstruction after the war. A kind of Marshall Plan. Alfred Kammer, Director of the Europe Department of the International Monetary Fund: “The challenge for Europe will be to rebuild an economically strong Ukraine that encourages refugees to return. Rebuilding the infrastructure that has been destroyed will require significant funding with a significant grant element.” Reconstruction and resettlement would boost refugee return and economic growth.
The White House is reportedly already considering canceling Ukraine’s national debt. The same applies to the 15 billion euros worth of bonds that the European Commission intends to issue for Ukraine in the coming months. According to the Commission, the EU has transferred 4.1 billion euros in aid to Kyiv since the beginning of the war. But these are all drops in the ocean: Selenskyj alone needs around seven billion euros a month to keep the administration and economy running, he told the IMF in April.
And according to calculations by the Kyiv School of Economics, the direct and indirect losses to Ukraine from the war amount to more than 500 billion euros and could increase further as the conflict lasts. It will be expensive no matter how long the war lasts. And innocent people will continue to die unless Putin finally stops his army.
