Five ways the economic fallout from the war in Ukraine will affect you

It is perhaps trivial to talk about the economic fallout from the Ukraine crisis, as the Russian war machine seeks to maximize civilian casualties and a nation is so brutally stripped of its sovereignty. The southern Ukrainian city of Mariupol is now almost completely razed to the ground, a throwback to Russia’s obliteration of Aleppo and Grozny.

The wider economic consequences of creating the biggest refugee crisis on the European continent since World War II while accelerating energy prices at a time of already high inflation have undoubtedly been played out by Vladimir Putin. and his buddies. Moscow has been waging hybrid warfare against the West in the form of cyberattacks, disinformation campaigns, assassinations and election interference for several years, a reaction to NATO’s near-constant encroachment on Russia since the unification of Germany in 1991.

Putin’s misstep was to think that Ukraine could be overwhelmed quickly and Western countries would be divided and mute in their response as in the past. The international boycott and isolation means that Russia is now the most sanctioned country in the world.

It’s not clear where all of this is taking us: closer to a peace accord and a possible Russian raid or on the brink of a protracted war and greater refugee crisis? Here are five key economic channels where the crisis is likely to unfold.


Resettling those fleeing war-torn Ukraine could cost $30 billion in the first year alone, according to a new report from the Center for Global Development. He also warns that a more permanent integration of millions of people would reshape the entire European economy.

Housing families displaced by war is a must, but the long-term expense could be enormous and could put additional strain on housing, education and health systems.

Conversely, an influx of workers, especially skilled workers, is likely to increase European output over time, thereby boosting growth, albeit at the expense of greater competition in the labor market. .

Energy prices

Those who argued that the current spike in inflation would be temporary – a finite manifestation of the post-Covid unraveling – were already on the sidelines before Russia’s invasion of Ukraine upended global energy markets. The argument is now put to bed.

We are in the midst of an oil and gas price shock similar to those that rocked the global economy in the 1970s. It remains to be seen whether the price spike and likely monetary policy response will lead to stagflation. – a period of high inflation and low growth – as was the case in the 1970s.

The prices of electricity and gas increased there respectively by 22.4 and 27.8% over one year, while heating oil rose by 54%. A worrying aspect of these figures is that they do not reflect the rising wholesale energy prices paid by energy retailers, meaning an even more painful pass-through to consumers is underway.

Bord Gáis Energy’s decision to increase its gas and electricity prices by 39% and 27% respectively, which will add €350 and €340 to the average bill in one fell swoop is as big an increase as the one that we have seen for decades.

Economic growth

Global growth, employment and monetary policy are expected to return to pre-pandemic trends in 2023; it’s out the window now. We will see a series of forecast reversals in the coming weeks as regulators and think tanks reassess the outlook.

The Organization for Economic Co-operation and Development (OECD) got the ball rolling last week, saying the crisis would reduce gross domestic product (GDP) – the broadest measure of economic output – by 1.08% in the world, 1.4 percent in the euro area and 0.88 percent in the United States.

We’ll get a closer read on the Irish economy from the Economic and Social Research Institute (ESRI) this week. In its spring economic bulletin, due out on Wednesday, the institute is expected to lower its overall forecast amid heightened uncertainty and higher inflation while warning of heightened risk to public finances . Lower growth means lower tax revenues.

Interest rate

Last Wednesday, the US Federal Reserve kicked off what many see as the start of a new era of interest rate hikes. The U.S. central bank approved its first rate hike in more than three years, while noting that the Ukraine crisis was “likely to create additional upward pressure on inflation and weigh on economic activity.”

The less responsive European Central Bank has so far ruled out a rate hike, but many see that as mere posturing. The entire financial ecosystem has been weaned on low interest rates – stock markets, corporate earnings, government borrowing, mortgages. A significant shift in the other direction will have consequences, not least for mortgage holders here, most of whom are already paying a premium compared to their European counterparts.

Food prices

While much of the focus has been on energy and transport prices, global food prices hit a record high in February, climbing 24% from a year ago , after rising 4% month-on-month.

This reflects the fact that Russia and Ukraine together produce about 30% of food products such as wheat and corn.

A recent calculation by our consumer correspondent, Conor Pope, suggests that the cost of an average weekly store has increased by €15. On an annual basis, this means that groceries could cost €780 more, which is no different from Bord Gáis Energy’s estimates of the increase in the average energy bill.