Ukraine war - Forecast: Ukrainian economy weakening
The destruction of Ukraine's energy infrastructure by Russian attacks leaves increasingly deeper economic traces. The Vienna Institute for International Economic Studies (wiiw) has now revised its growth forecast for the country down by 0.5 percentage points to 2.7 percent for 2024 compared to the spring forecast. At the same time, the Institute has revised the prospects for the Russian economy, which is geared towards war economy, upwards. The country is expected to grow by 3.2 percent in a similar manner as in 2023. However, the acute labor shortage and high interest rates will limit the growth of the Russian economy to roughly 2.5 percent in the coming years, according to wiiw.
Approximately one third of the federal budget of Russia - 6 percent of GDP - flows into the war economy. This also benefits many other sectors. High wages for frontline soldiers and payments to war veterans and their families lead to a redistribution from top to bottom, which fosters sympathy for the war in the population, says a Russia expert at wiiw.
In its summer forecast, the Institute assumes that the economic momentum in most economies of Central, Eastern, and Southeastern Europe will gain strength in 2024. In particular, the EU members of the region have proven to be more robust than the persistent economic stagnation in Germany. Poland is the growth leader among the eastern EU members with 3.3 percent in this year and 3.6 percent in the next year. The EU members Romania (3.0 percent) and Croatia (3.0 percent) are also expected to grow strongly according to wiiw.
- Despite the economic challenges resulting from the destruction of Ukraine's energy infrastructure by Russian attacks, Europe as a whole is expected to see an improvement in economic momentum in 2024, according to the EU's summer forecast.
- The ongoing conflicts between Ukraine and Russia have significantly impacted Ukraine's economic situation, leading to a downward revision of its growth forecast by the Vienna Institute for International Economic Studies (wiiw).
- Moscow's focus on a war economy has resulted in a redistribution of wealth from the top to the bottom in Russia, which has led to increased sympathy for the war among the Russian population, according to a Russia expert at the Vienna Institute.
- The economic situation in Russia, which is heavily reliant on oil and gas exports, has been positively revised by the wiiw, with the country expected to grow by 3.2 percent in 2024, similar to its growth rate in 2023.
- The EU, as a whole, has proven to be more resilient than Germany in the face of economic stagnation, with Poland emerging as the growth leader among the eastern EU members with forecasted growth rates of 3.3 percent in 2023 and 3.6 percent in 2024.
