Economic and Social Implications of the War in Ukraine

By Lauren MacDonald | March 31, 2022

It’s been eighty years since we’ve seen a “hot” war in Europe. Russia’s decision to burst through the borders of Ukraine brought that streak to an abrupt halt, offsetting any previous semblance of peace the two countries may have had with each other. The effect of the war on Ukraine is rippling throughout the globe, catching many countries by surprise and causing economic and social issues for countless people.

Russia and Ukraine have strong historical and cultural ties that span many centuries. The most relevant connection between the two begins with the conclusion of the Second World War. The Ukrainian Soviet Socialist Republic and Soviet Russia were the two most consequential founders of the USSR, creating a link that ended with the collapse of the Soviet Union in 1991. Russia began its slow attempt to reclaim Ukraine in 2014 with the annexation of Crimea, a territory that was previously considered Ukrainian. Ukraine has recently been inching away from its ties to Russia towards the West, trying to join NATO and the European Union. Russian president, Vladimir Putin, sees this as a betrayal on Ukraine’s part and a threat to his socialist regime. His decision to invade Ukraine has initialized the writing of a highly significant chapter in the history of Russia-Ukraine relations.

So, what does the war mean for the economies of Russia and Ukraine, as well as the rest of the world? Attempts were made to diplomatically resolve this issue, but it has become necessary for countries to put their foot down on Russia. Severe economic sanctions have been placed on Russia, severely stunting their economic growth. Before the invasion, Russia’s economy was expected to grow by 2%, but is now expected to shrink by as much as 15%. Inflation has shot up as the value of the Russian ruble continues to go down to levels never before seen. Interest rates have doubled and the stock market has closed for the foreseeable future. The war is driving Russia dangerously close to bankruptcy as they continue to encroach upon the borders of Ukraine.

Ukraine’s economy is not taking the invasion well, either. The country’s GDP has shrunk by half since the beginning of the war as citizens flee the country. Companies based in Ukraine have begun to redirect their production towards helping soldiers, making boots, and feeding troops. Exports of essentials, such as sugar, have been banned in an attempt to aid people within the country. The government is loosening restrictions on purchases, such as dropping a prescription requirement on buying medicines.

The economic impact of the war in Ukraine is reverberating around the world, causing slower growth and spikes in prices. We have already seen a jump in gas prices in the United States, and it is possible that other goods will be negatively affected, such as the cost of wheat. The European Union has sourced much of its natural gas from Russia, and is beginning to draw back from their gas reserves in an attempt to weaken Russia. Supply chains around the world are already being negatively impacted. Is there an end in sight, or will the war on Ukraine continue to escalate?

Edited by Joseph Barbieri