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The Ukrainian Conflict Has Stunted Ukraine’s Economy Far More Than Russia’s

As Russia invaded elements of Ukraine, the news media couldn’t stop talking about the conflict’s ripple effects. What did it mean for Europe’s supply of natural gas? What did it mean for the U.S. foreign policy in Eastern Europe? Would Vladimir Putin stop at Ukraine or continue West? As tensions have plateaued, we’re beginning to see how the Ukrainian conflict affected the rest of the world, at least economically. Ukraine was hurt the most, then Russia, then Europe, and by the time the ripples reached the rest of the world, it barely had any impact at all.

In the first comprehensive public estimate of the conflict’s economic effects since April, the World Bank projects Ukraine’s economy to shrink by 5 percent this year as a consequence of heightened tensions with Russia. Businesses are freezing investments because of the threat of political violence, residents are halting spending in case they need money should the conflict worsen, and import and export markets are slowing.

Some of the economic chaos in Ukraine has spilled over to Russia and other European economies. But, not surprisingly, those citizens don’t have it nearly as bad as Ukrainians. The World Bank estimates that Russia’s economic growth will slow to 0.5 percent this year, nearly 2 percentage points lower than it would have been had Russia not annexed Crimea. On a continental scale, European growth will be reduced by about 1 percentage point because of trade linkages to Russia and Ukraine.

But once the ripples extend to the global economy at large, the Ukrainian conflict is barely perceptible. The report expected global gross domestic product growth to slow by only about one-tenth of a percentage point this year.


As further proof, take a look at the VIX index, commonly known as the “fear gauge” of financial markets. The VIX is a broad measure of volatility in the stock market, compiled from stock options data by the Chicago Board Options Exchange Market. The VIX spiked when the Ukrainian conflict escalated in early February, but it has since fallen to its lowest point since 2007, when murmurs of the financial crisis began. Markets don’t seem to think that violence will escalate again in Ukraine — or if it does, that it’ll have much effect on the global economy.

Economically, the Ukrainian-Russian conflict has been good for absolutely nothing — and nowhere more so than Ukraine.

Andrew Flowers wrote about economics and sports for FiveThirtyEight.