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The Russia-Ukraine war has wreaked havoc on the people of Ukraine, as well as on its economy. This article aims to explore the economic impact of the conflict in 2024, focusing on the economies of Russia and Ukraine, while also providing insight into the global macroeconomic impact as well as a potential conflict resolution scenario in 2025. 

Since Russia’s full-scale invasion of Ukraine, Russia’s economy has outperformed forecasts, defying predictions of double-digit contractions. In actuality, GDP grew by 3.6% in 2023 and 4% in 2024. However, viewing this as a depiction of economic health is inaccurate. The main driver of growth has been the rapid expansion of government spending, and this is beginning to place strain on Russia’s fiscal resources. This trend is expected to continue into 2025, with the Kremlin continuing to place a strong focus on the war. Even if the conflict were to end this year, military spendingwouldl remain elevated as Russia will have to replenish depleted arsenals. Despite the substantial state spending, Putin is projecting an image to Ukrainian allies that time is on his side, so the only way to end the war is to accommodate his wishes. To accomplish this picture of fiscal security, Putin is using the Russian banking system to lend at a favourable rate to select companies, achieving mass money printing that does not show up on the public balance sheet. This privatised credit scheme has created a fiscal time bomb that ultimately means, despite what Putin projects, Russia cannot continue this conflict indefinitely, as a credit crisis is brewing.  

Aggressive state spending, coupled with war-induced labour shortages significantly boosted Russian imports in 2024, as the domestic economy is unable to satisfy demand. This has undermined the Ruble, which has depreciated by 16% against the dollar in 2024, and has fuelled inflation. Official statistics from Russia suggest an inflation rate of 9% but real inflation for many households is substantially higher (potentially exceeding 20%), despite a 21% interest rate, which has failed to curb inflation. Russia’s military-industrial complex is growing for now, but cracks in the economy have started to appear. If Ukraine’s allies wanted to widen these cracks, the key would be to deny Putin access to external funds. The west has already blocked $300bn in reserves which has prevented Russia from spending all its foreign earnings and easing resource constraints. If they were to continue or place further restrictions on the Russian economy, Putin would be at risk of a collapse of power. 

The Ukrainian economy has suffered immensely due to the war. The country experienced a GDP contraction of 29% in the first year of the conflict, but growth has since recovered with the economy expanding 4% in 2024. This was supported by defence spending and agricultural exports. However, similarly to the Russian economy, emigration and mobilisation of troops have led to severe labour shortages. Employers increased wages significantly in response toattractingt labour, but this has contributed to rising costs, with inflation reaching 11.2% in November (its highest level in 2024). The economy is expected to suffer in future due to substantial infrastructure damage and extensive electricity disruption due to attacks, with economic growth forecast to slow to 2% in 2025. This along with Ukraine needing $486 billion over the next decade for reconstruction, highlights the crucial role international aid must play in supporting Ukraine’s economy and its people.

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The costs of the Russia-Ukraine crisis have not just been confined to these two countries. The conflict has taken a heavy toll on the global economy. Commodity markets have faced greater volatility since the war began. In developing nations, food and energy crises fuelled by the war have pushed over 75 million people into extreme poverty since 2022. This is partly due to Ukraine and Russia accounting for 30% of global wheat exports before the war. Therefore, the collapse of the Black Sea grain initiative in 2023 caused wheat prices to spike by 15%, disproportionately affecting low-income countries reliant on imports. This is evident in Kenya and Egypt, where Russian and Ukrainian wheat once accounted for 85% and 67% of wheat imports respectively. This alongside many other African countries being affected by fertiliser prices, has pushed millions into food insecurity. Europe has been especially impacted by changes in natural gas prices. The cutoff of gas supplies via Ukraine, which historically transited 40% of Russian gas to Europe has forced the EU to rely on liquified natural gas (LNG). Gas prices have soared 44% in 2024 and with Ukraine recently having closed its final remaining pipeline carrying Russian gas to Europe, the price rises are likely to continue into 2025. This will be driven by Europe competing more with Asia over supplies of LNG. This illustrates how Europe’s attempts to cut off dependence on supplies of Russian gas have failed (as Russian LNG exports to the EU hit record highs this year) which has exacerbated the impacts of the conflict on EU nations. Not only will the outcome of this conflict have vast consequences on European economic performance, but it will also have a profound impact on the long-term security of the continent, as well as others. If Russia were to emerge victorious or gain favorable concessions in future peace talks, it would set a dangerous precedent regarding Russia’s future ambitions and may even embolden other autocracies like North Korea and China to pursue similar measures to exercise their imperialism. ​

Looking ahead to 2025, a peace treaty appears to be a likely scenario. Since President-elect Donald Trump has repeatedly stated that he will end the war within a day of his inauguration on January 20th, a resolution to the conflict may be on the horizon. Although Trump is very unlikely to achieve peace between Russia and Ukraine in his envisioned timeline of a day, he will likely threaten tougher sanctions on Russia to persuade Moscow to seriously consider peace. However, Trump’s campaign rhetoric suggests he could try to force Ukraine to accept a peace deal that is highly favorable to Moscow or abandon Ukraine altogether. On the other hand, there does appear to have been a shift from election rhetoric to more serious policy talks with Keith Kellogg, Trump’s Ukraine envoy, welcoming Biden’s green light for Ukraine to use long-range weapons and his recent decision to provide Ukraine with $6 billion in fresh military and budget assistance. Despite this, scepticism remains over the US’s future commitment to Ukraine’s defence under Trump. Trump’s team has stated that the president-elect plans to continue supplying military aid to Ukraine, but NATO member states must increase defence spending to 5% of GDP (a target which no members currently meet with only 23 of the 32 member states meeting the alliance’s current 2% target). Russia will want guarantees that Ukraine will not join NATO. US allies will take a stance to not remove NATO membership from consideration. The future of the conflict is highly uncertain, but a lot is at stake. It is not only Ukraine’s sovereignty and independence that is contingent on a favourable peace deal, but the long-term security of Europe.