Russian invasion halted 30% of Ukraine’s economy, says finance minister

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The Russian invasion forced 30% of Ukraine’s economy to shut down, Finance Minister Serhiy Marchenko said in a televised interview on Saturday.

“Our tax revenues do not allow us to cover our needs, [portanto] the main revenue stream is the loan,” Marchenko said.

Ukraine’s government’s top economic adviser, Oleg Ustenko, said Russian invading forces have so far destroyed at least $100 billion worth of infrastructure, buildings and other physical assets.

Ustenko, economic adviser to Ukrainian President Volodymyr Zelenskiy, told an online event organized by the Peterson Institute for International Economics that the war has caused 50% of Ukrainian companies to close completely, while the other half are operating well below capacity.

Nine out of ten Ukrainians could face poverty and extreme economic vulnerability if the war drags on into next year, wiping out two decades of economic gains, the United Nations Development Program (UNDP) said.

Achim Steiner, the UNDP administrator, said his agency was working with the Kiev government to avoid the worst-case scenario of an economy collapse. The aim was to provide cash transfers for families to buy food to survive and sustain basic services.

The poverty line is generally defined as purchasing power of $5.50 to $13 per person per day, he added in a video interview from New York. Before Russia invaded the country on Feb. 24, about 2% of Ukrainians lived below the $5.50 line, he said.

“We estimate that up to 18 years of Ukraine’s development gains could simply be wiped out in a matter of 12 to 18 months,” Steiner said.

Europe

And it’s not just Ukraine that will be impacted by the invasion. The risk of stagflation strikes fear into the hearts of economists – and monetary policymakers – across the world. Europe could be heading for something even worse.

Western sanctions imposed after Russia’s invasion of Ukraine have caused global energy prices to soar and consumer confidence to plummet in Europe. Russia is being cut off from Western financial markets.

Barclays analysts cut their eurozone growth forecast for this year by 1.7 percentage points to 2.4%. Private consumption, investment and exports are expected to grow at a slower pace across the continent.

Barclays also raised its 2022 eurozone inflation forecast by 1.9 percentage points to 5.6%.

What is the worst case scenario for Europe’s economy?

A complete ban on energy imports from Russia would push Brent oil prices to $160 a barrel and push the eurozone into its third recession since the start of the coronavirus pandemic, according to Capital Economics.

“A collapse in Russian energy trade would precipitate energy rationing in parts of Europe, which in turn would disrupt supply chains and could increase inflationary pressure globally,” economist Caroline Bain said.

“Higher energy prices would also raise prices for agricultural commodities and industrial metals,” he added.

Russia, which needs energy revenue to fund government spending and keep its economy afloat, has warned the West about banning oil imports.

“It is absolutely clear that a rejection of Russian oil would lead to catastrophic consequences for the global market,” Russian Deputy Prime Minister Alexander Novak said on state television, according to Reuters.

“The rise in prices would be unpredictable. It would be $300 a barrel, if not more,” added Novak, who also served as energy minister.

Well-targeted increases in government spending by OECD countries of the order of 0.5% of GDP could reduce the economic impact of the war by about half without significantly increasing inflation, the Organization said.

IMF officials have already said they expect to lower the Fund’s previous forecast of 4.4% global economic growth in 2022.

Source: CNN Brasil

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