The analysts from the Polish Economic Institute (PIE) in the latest issue of the PIE Economic Weekly write that Russia’s invasion of Ukraine would lead to a deep economic collapse in Ukraine and adversely affect economic growth in the European Union countries, especially in Central and Eastern Europe. The war with Russia will increase oil and gas prices in world markets. Moscow will also lose financially due to the expected economic sanctions of the US and the EU.
The authors of the study note that as a result of the Russian invasion, a collapse of the Ukrainian economy is possible, similar to the crisis after the beginning of the Russian aggression in 2014. Then Ukraine was affected by currency collapse, 50% inflation, and a decline in the value of exports by 29%. The service of foreign debt was also a gigantic problem.
A Russian invasion would also have negative consequences for its economy. The Moscow stock exchange has already reacted to the escalation of tensions and on January 24 the USD-denominated RTS index lost 8%. It is known that Western countries will react with new sanctions to the Russian invasion. Russia will be cut off from advanced technologies in the first place. Trade retortions and Russia’s disconnection from the SWIFT interbank settlement system are also likely.
PIE experts remind that in the years 2014-2015, i.e. the years of the greatest crisis related to the war in Donbas, Polish exports to Ukraine fell by 30%, and exports to Russia by 37%.
Ukraine is the fourth recipient of Polish exports outside the EU (2.19% share in total exports). In the first 11 months of 2021, its exports increased by 25% compared to the corresponding period before the pandemic (2019). The main goods exported to Ukraine are: cars, plastic products, chemicals and fertilizers.
Russia is the third non-EU and seventh recipient of Polish exports in the world (2.79% share in exports), but it remains a key supplier of energy resources.
The aggravation of the conflict in Ukraine also poses a potential threat to Polish investments in that country. According to the data of the National Bank of Ukraine, in 2020 the investments amounted to USD 129.3 million, which makes Poland the eighth largest investor in Ukraine.
Adrian Andrzejewski