This report provides a forecast of GDP growth for major European economies – the UK, Germany, and France – in light of the economic shocks resulting from Russia’s invasion of Ukraine. It analyses the distinct impacts on each country and evaluates European policy responses. Finally, it offers recommendations on the most effective policy alternatives in the future.
- Forecast GDP growth across Europe using recent economic data.
- To determine the economic Shocks Established by Putin’s War in Ukraine
- To compare and contrast the GDPs of different economies.
- To review fiscal and monetary policies adopted across Europe and propose alternative policy options to mitigate the growth impacts.
The study was developed from the analysis of four different datasets: GDP, International Trade data, Consumer Price Index data, and Employment data. All the data were obtained from FRED economic data sources and stored in CSV format. These data were then uploaded in R software, cleaned or pre-processed, visualized, and insights derived from them.
4.0 Results and Discussion
4.1 GDP growth across Europe
The GDP for Europe has been on an uptrend from 2010 to 2019 due to a couple of reasons, such as a speedy recovery from the global financial crisis that occurred between 2008-2009. Conversely, a downtrend in GDP was observed in 2020 due to the invasion of the COVID-19 pandemic into the world. This pandemic subjected the world to recession since companies and businesses closed down, individuals lost their jobs, and lower consumer purchasing power, among others. After the pandemic, the GDP started going up across the entire Europe because normalcy was restored. New companies were formed, and most people returned to their jobs, thus increasing the individuals’ purchasing power. Most economies in Europe thrived after the pandemic despite the commencement of war between Russia and Ukraine in February 2022.
4.1.1 Forecasted GDP in Europe
Results from the graph below show that the GDP of European Countries will go up from 4,000,000 to 5,000,000 Million Euros. The following factors will lead to high GDP in 2024 and 2025:
- Conflict resolution: When Russia and Ukraine settle their differences, peace will exist, and hence, a conducive business environment will be created between countries in Europe. With peace and stability among nations, businesses will be conducted as usual, leading to GDP growth.
- Energy and commodity prices may stabilize in 2024 as supply responses increase and demand destruction sets in. This would alleviate high inflation and boost consumer spending and business investment.
4.2 Economic Shocks Established by Putin’s War in Ukraine
- High CPI Across Europe
The graph below shows that the CPI has rapidly increased since the Russia-Ukraine war started. High CPI is associated with a high inflation rate (Bryan et al., 1993). The abnormal rise in inflation indicates that the war between the two countries affected bilateral trade between Russia and countries like the UK and Germany. Fuel and natural gas importation had to be cut short, resulting in low supply and high product demand. All these factors result in the acquisition of those products at exorbitant prices.
Due to the conflict between the two Soviet republics, Ukraine’s GDP dropped drastically, resulting in high poverty levels and food insecurity.
The results in the above graph agree with that of Ben Hassen and El Bilali (2022). They categorically state that the Russia-Ukraine war negatively impacts other nations, especially concerning food security. Ukraine’s GDP dropped by more than 30%, forcing the country into recession.
- Decrease in Employment Rates
The graph below indicates a slight decrease in the employment rates in 2022. The war in Ukraine altered several economic activities, such as farming, logistics, and procurements of oil products (Jagtap et al., 2022). Therefore, there is a need for peace in the region to restore things to normalcy. Unemployment leads to low purchasing power, which in turn results in poverty.
- Decrease in Trade Growth
In the event of war between two nations, the bilateral trade between these countries and other countries, for example, Russia-Germany, is destroyed (Sinambela, 2022). Germany imports natural gas from Russia, but because of Russia’s conflicts with Ukraine, Germany cannot receive the usual quantity of gas they get. This brings the trade growth down, as observed in the graph below.
4.3GDPs of Different Economies
High energy prices and supply chain concerns are common shocks in many countries. On the other hand, the UK is uniquely vulnerable due to its increased reliance on Russian gas and tighter ties with Ukraine. Germany’s manufacturing industry is also heavily damaged. France appears to be resilient, but it is still facing challenges.
4.4 Policies Adopted Across Europe and Proposed Alternative Policy Options
- Fiscal stimulus: Countries like Germany, the United Kingdom, and France have announced tax cuts, subsidies, and expenditure packages to help families and businesses. Rising debt, on the other hand, is a restraint.
- Monetary policy that is accommodating: The ECB has delayed rate hikes and outlined efforts to prevent bond market fragmentation while it unwinds support.
- Price controls: Several countries have put price limitations on energy or food commodities and regulated rises in electricity/gas prices for households.
- Strategic energy investments: The EU presented a strategy to phase out dependency on Russian fossil fuels by 2027 by investing in LNG infrastructure, renewables, and efficiency.
The economic shocks caused by Russia’s invasion of Ukraine offer considerable downside risks to Europe’s economy. However, depending on trade and energy dependence, each country’s effects differ. Fiscal stimulus, monetary accommodation, price restrictions, and strategic energy expenditures have all been used by policymakers to respond. While these methods give some protection, rising debt levels limit possibilities. Overall, the future remains highly unpredictable and contingent on the length and scope of the conflict.
- Increased research and development (R&D) spending, clusters, and technology incentives could encourage the development of innovative energy solutions.
- Energy tax relief: Temporary reductions in energy/carbon taxes and levies can minimize corporate costs.
- Streamlining rules and increasing incentives for renewable energy projects could improve energy security while meeting climate goals.
Ben Hassen, T. and El Bilali, H. (2022). Impacts of the Russia-Ukraine war on global food security: Towards more sustainable and resilient food systems? Foods, 11(15), p.2301. doi:https://doi.org/10.3390/foods11152301.
Bryan, M. F., & Cecchetti, S. G. (1993). The consumer price index as a measure of inflation.
Jagtap, S., Trollman, H., Trollman, F., Garcia-Garcia, G., Parra-López, C., Duong, L., … & Afy-Shararah, M. (2022). The Russia-Ukraine conflict: Its implications for the global food supply chains. Foods, 11(14), 2098.
Sinambela, S. I. (2022). Bilateral Relations Through Conflict And Cooperation: Germany’s Dilemma Over Russia. Jurnal PIR: Power in International Relations, 7(1), 70-82.