Ukraine Conflict Impact Study
The conflict in Ukraine has had a significant impact on European economic growth and has notably driven up inflation across the continent, according to a study published by the Swiss National Bank at the end of September. The repercussions of this conflict are expected to worsen in the near future.
Since the invasion of Ukraine by Russia in February 2022, Europe has witnessed a surge in energy costs, financial market instability, and a substantial economic downturn in both Russia and Ukraine.
According to the Swiss study, the GDP of many European countries, including Germany, Britain, France, Italy, and Switzerland would have been between 0.1% and 0.7% higher, and consumer prices would have been 0.2% to 0.4% lower. The study also warns that the negative consequences of the war are expected to intensify in the medium to long term, particularly in relation to the real economy. For example, it is predicted that in one to two years, the economic impact of this conflict is likely to be approximately twice as significant.
Among the countries assessed, Germany appears to be the most severely affected. Its GDP would have been 0.7% higher, and inflation would have been 0.4% lower in the fourth quarter of 2022 if Russia had not initiated hostilities in Ukraine. Similarly, Britain faced considerable economic repercussions, with a 0.7% reduction in economic output and a 0.2% increase in inflation.
France would have experienced a 0.3% lower inflation rate and a 0.1% higher GDP without the conflict, while Italy would have seen a 0.2% reduction in inflation and a 0.3% higher GDP. In the case of Switzerland, the study indicates that its GDP would have been 0.3$ higher, and inflation would have been 0.4% lower if the war had not occurred.
The authors of this study acknowledge that their estimates may err on the conservative side as they may have underestimated the inflation in food prices and focused on oil prices rather than gas prices. Furthermore, the impact of the conflict extends beyond economic statistics, encompassing factors such as the influx of refugees and increased military spending, which may be more substantial compared to previous conflicts.
Link to study referenced: https://www.snb.ch/en/mmr/papers/id/working_paper_2023_04