The Economic Implications of Russia's Invasion on Ukraine 2022 (Fall 2024 Edition)

Written by Sophia Davis

The 2020 pandemic showcased an extreme shock to economies, but another event that
causes periods of uncertainty and fluctuations are wars and country conflicts. On
February 24, 2022, Russia invaded Ukraine as a part of a long spanning war between
the two. The paper will compare the economy of Russia in 2021 and early 2022, to the
post Ukraine invasion economy from later 2022 to current. To examine the effects of the
invasion on their economy, some factors that will be analyzed are GDP, the value of
their currency, and unemployment. The conclusion is Russia’s invasion on Ukraine
severely halted the progress that they made economically post-pandemic.
The gross domestic product (GDP) quantities how much a country produces by
totalling the consumption, investment, government spending, and net exports. When the
GDP is higher, people have more money to spend and the country is producing more,
insinuating a healthier economy. According to MacroTrends, Russia's GDP increased by
23.87% in 2021 and 23.35% in 2022. In 2021 and 2022 Russia was increasing in
production due to the lessening presence of COVID-19. This shows that Russia's
economy was doing well at this stage post-pandemic and returning to a healthy stable economy.

In 2023, Russia's GDP decreased by 10.54%. A change from increasing by
23.35% to decreasing by 10.54% is a drastic drop in their GDP. A decrease to GDP
implies a decrease in their consumption, investment, net exports and government
spending, showing that they have less money to spend and save. The drop in GDP is
important in regards to the health of the economy because it highlights that they are
now functioning as a less efficient and healthy economy. In terms of GDP, the invasion
lessened their production and efficiency making their rising GDP fall.
A crucial factor in GDP is net exports. Net exports are defined as the amount of
goods imported subtracted from goods exported. Net exports are a factor of GDP but
also important on their own because it shows the amount a country is able to profit by
exporting to other countries, and gives a measure of how self-sufficient they are by
factoring in the amount they import. In 2021, Russia had positive net exports of 211 B
and in 2022 had positive net exports of 291. The high, positive net exports value implies
a stronger economy because they have high profit coming from other countries buying
their goods and they don’t rely heavily on buying goods from other countries. Russia
heavily profits off of gas and oil exporting and, according to the World Bank, their gas
and oil revenue had increased by 60% in 2021. By increasing the amount they sell in economy.

In 2023, Russia's GDP decreased by 10.54%. A change from increasing by
23.35% to decreasing by 10.54% is a drastic drop in their GDP. A decrease to GDP
implies a decrease in their consumption, investment, net exports and government
spending, showing that they have less money to spend and save. The drop in GDP is
important in regards to the health of the economy because it highlights that they are
now functioning as a less efficient and healthy economy. In terms of GDP, the invasion
lessened their production and efficiency making their rising GDP fall.

A crucial factor in GDP is net exports. Net exports are defined as the amount of
goods imported subtracted from goods exported. Net exports are a factor of GDP but
also important on their own because it shows the amount a country is able to profit by
exporting to other countries, and gives a measure of how self-sufficient they are by
factoring in the amount they import. In 2021, Russia had positive net exports of 211 B
and in 2022 had positive net exports of 291. The high, positive net exports value implies
a stronger economy because they have high profit coming from other countries buying
their goods and they don’t rely heavily on buying goods from other countries. Russia
heavily profits off of gas and oil exporting and, according to the World Bank, their gas
and oil revenue had increased by 60% in 2021. By increasing the amount they sell in the

global market, they strengthen their economy since gas and oil profit is the main
source of their ability to import foreign goods, pay external debts and build reserves. In
2023, however, they had negative net exports of 72.33 billion. The high, negative net
exports value states that they are importing significantly more than they are exporting.
For a country like Russia that is so dependent on their revenue from their exports, a
negative net exports value is a very negative economic indicator. The negative net
exports indicate a less healthy economy because higher exports result in a higher
aggregate demand. With negative net exports, their aggregate demand will be lower,
leading them into a recessionary gap. Russia's unemployment rate has consistently declined over the past years following the pandemic, which might seem like an indicator of growth but actually implies other issues below the surface.

In 2021, the unemployment rate stood at 4.72%, which decreased to 3.87% in 2022, and further declined to 3.33% in 2023 (Macrotrends, 2023). This downward trend continued into 2024, with the unemployment rate hitting a
low of 2.3% in October (Trading Economics, 2024). The continuation of the decline into
2023 and 2024 reflects the decreasing workforce due to the amounts of working age
men leaving the labor force to fight in the war. According to the Observer Research
foundation, Russia heavily depends on migrants for their labor, but because of the
increasing political tensions, are seeking out other employment destinations. The social
impacts of the war are driving their migrant population out of the country, leading to a
large labor shortage in many industries. A labor shortage leads to a decrease in
production, and less revenue from exports.

The value of a currency is very important for a country’s economic stability, since
it impacts the domestic purchasing power and ability to become involved in international
trade. The Russian ruble is influenced by the supply, demand, and expectations in the
foreign exchange market. After the invasion of Ukraine in February 2022, the ruble lost
over 40% of its value. There was a decrease in demand for the ruble as investors were
less confident due to new sanctions being placed, which restricted access to
international markets (CNBC, 2022). Although the ruble regained some value through
strict monetary regulation by the Russian Central Bank, its exchange rate remained
unstable. In December 2024, the ruble had depreciated to 103₽ per U.S. dollar,
compared to 85₽ per U.S. dollar in September (Reuters, 2024). This depreciation is
consistent with reduced demand for the ruble internationally due to lower net exports.
Depreciation in the currency increases the price of imports, fueling cost-push inflation.
In the Russian economy, this translated to rising costs of goods and services, lowering
real incomes and reducing consumer purchasing power. All of these factors also impact
consumer expectation, given that with higher prices and lower incomes people are more
hesitant to make bigger purchases and increase consumption. The decrease in
consumer confidence in spending leads to a lower aggregate demand, shifting it away
from equilibrium and into a recessionary gap. This also coincides with the concept of
nominal price stickiness, where prices in the short run cannot adjust quickly to these
external shocks, and amplify the negative shift in aggregate demand, worsening the
recessionary gap. Overall, the degradation in value of the ruble is driving their economy
into a recessionary gap, causing inflation and lower GDP.

Russia had a recovering, growing economy following the pandemic in 2021 and
early 2022. Previous to the invasion Russia had an increase in production reflecting in
their increasing GDP during 2021 and 2022. This was then followed by a decreasing
GDP in 2023, reflecting the impacts on production from the invasion. A factor of GDP
that also showcases the impact of the invasion is net exports. Russia had significantly
less exports and more imports following the invasion which is an extremely negative
indicator given Russia’s reliance on gas and oil revenue in the global market. Russia
also saw an increase in their labor shortage reflecting the amount of men leaving the
workforce to fight in the war, and the amount of migrant workers leaving the country
because of the political state, all being reflected in an increasingly low unemployment
rate. The effects of the invasion also reflected in the value of their currency, resulting in
drastic decreases in the purchasing power of their currency, the ruble. Overall, Russia’s
regrowth following the pandemic was halted by the invasion on Ukraine.

Works Cited:

CNBC. “Russian Ruble Plunges over 40% after Ukraine Invasion.” CNBC, 28 Feb. 2022,
https://www.cnbc.com/2022/02/28/russian-ruble-plunges-over-40percent-after-ukraine-invasion.
html.
International Energy Agency (IEA). “Russia’s Export Revenue from Crude and Refined
Products.” Oil Market Report - November 2023, 2023,
https://www.iea.org/reports/oil-market-report-november-2023.
Macrotrends. “Russia GDP Growth Rate 1990-2024.” Macrotrends, 2023,
https://www.macrotrends.net/global-metrics/countries/RUS/russia/gdp-growth-rate.
Macrotrends. “Russia Unemployment Rate 1990-2024.” Macrotrends, 2023,
https://www.macrotrends.net/countries/RUS/russia/unemployment-rate.
Reuters. “Russian Ruble Hits New Lows amid Economic Sanctions.” Reuters, 5 Dec. 2024,
https://www.reuters.com/markets/currencies/russian-ruble-hits-new-lows-amid-economic-sanctio
ns-2024-12-05/.
The World Bank. “Russia Economic Report.” World Bank Publications, 2023,
https://www.worldbank.org/en/country/russia/publication/rer.
Trading Economics. “Russia Unemployment Rate.” Trading Economics, 2024,
https://tradingeconomics.com/russia/unemployment-rate