Ukraine’s losses as a result of the Russian invasion may reach $ 100 billion in Ukrainian GDP. “This scale is similar to the effects of the civil war in Syria”, estimate experts from the Polish Economic Institute (PIE). They presented their conclusions in the report “Warnomics. Economic costs of the invasions of Russia and Belarus in Ukraine”. 

War is already taking place in regions accounting for over 55% of Ukraine’s GDP. Losses in GDP in 2022 may reach up to USD 100 billion (a similar scale of losses was caused by the civil war in Syria). Even conservative in its forecasts, the International Monetary Fund indicates that 35% of Ukrainian GDP is at risk. 

Experts reiterate UN estimates saying that each day of the conflict brings Ukraine property losses of 4.8 billion dollars. 

“The scale of the destruction already many times exceeds Ukraine’s ability to rebuild itself. The scale of the damage so far is four times larger than Ukraine’s 2019 investment outlays, which amounted to approximately USD 23 billion”, report PIE experts, citing World Bank data. 

The authors of the report point out that, according to UN data, half of the Ukrainian companies have stopped operating, and the rest are operating below their potential. The effect is the collapse of the tax revenues of the Ukrainian budget. Currently, they are almost seven times smaller than usual. In addition, the country may have problems with financing the deficit with debt issues, because during the war the so-called risk premium for the bonds of the countries involved is increasing. Investors in such conditions prefer bonds with shorter redemption and demand higher interest rates for long-term instruments. 

PIE experts also analyzed the potential effects of the war in Ukraine on the Polish economy. One of them is the expected increase in inflation. According to PIE, inflation in Poland in 2022 will amount to 10.8%. This is the effect of higher food and energy prices and the weakening of the PLN. Another effect that may occur is a change in the structure of public debt in Poland. Investors may prefer bonds with shorter redemption due to higher risk. 

“Currently, the average redemption of foreign debt in Poland is 6 years, which is 2 years more than the debt of domestic residents. The data of the Ministry of Finance indicate that among non-residents, long-term investors own 25% participation in the debt.” 

“The war in Ukraine also affects the mood of investors and the countries of Central and Eastern Europe may be perceived as more risky markets. With exchange rate fluctuations and rising interest rates, this may also translate into higher costs of bonds issued by Poland and other countries in the region”, assess PIE economists. 

Arkadiusz Słomczyński order