Economics of the Russian-Ukrainian War (2022–2024): Analytical Review

Introduction

Russia's full-scale war against Ukraine, which began in February 2022, has led to an unprecedented increase in military spending and severe economic consequences for both countries, their allies and the world. States are rapidly increasing defense budgets, reallocating resources in favor of the military, and facing rising inflation, sanctions, and energy shocks. Below is an overview of the key economic indicators of the war: a comparison of military spending of different countries, the dynamics of defense budgets, the increase in the size of the army and the cost of maintaining it, the burden on the defense industry, as well as the macroeconomic consequences of the war (taxes, inflation, budget structure, subsidies, sanctions and military aid).

Military spending and defense budget growth (2022-2024)

Global military spending has reached a record high amid the war. In 2022, global military spending increased to $2.24 trillion (+3.7% in real terms). In 2023, it increased to $2.443 trillion (+6.8%), and in 2024 to $2.718 trillion, which is 9.4% more than a year earlier.

• Ukraine: Ukraine's military spending soared by an order of magnitude due to the need to repel aggression. In 2021, Ukraine spent about $5-6 billion on defense, and in 2022 it was already $44.0 billion, which is 640% more than in the previous year. This is the highest annual increase recorded by SIPRI since 1949. In 2022, spending amounted to ~34% of Ukraine's GDP (against 3.2% in 2021). In 2023, Ukraine's military spending increased by another 51%, According to this indicator, Ukraine ranked 8th in the world (from 11th place in 2022). In 2024, growth slowed down (+2.9% in real terms), spending reached $64.7 billion (34% of GDP). Despite the huge amounts, they accounted for only 43% of Russia's military spending from allies – this is counted as donor expenses. According to SIPRI estimates, taking into account the foreign weapons received, Ukraine's actual military spending in 2024 will reach $125 billion (making it the 4th world military budget).

• In 2022, Russia spent approximately $86.4 billion (+9.2% compared to 2021), or 4.1% of GDP, on defense. Russia's military spending increased by another 24%, to $109 billion, equivalent to 5.9% of GDP. In 2024, spending increased to about $149 billion (+38% per year) - about 7.1% of Russia's GDP. In rubles, the Russian military budget for 2024 reached 13.1 trillion rubles.This is about 1/3 of all federal spending in Russia. In terms of purchasing power parity (PPP), Russia's real military spending is even higher - about $462 billion, which is comparable to the total spending of the whole of Europe. The growth of Russia's military budget since 2022 is unprecedented in post-Soviet history; in 2024, ~6.7% of GDP is allocated to defense, For the first time, it exceeded spending on social budget items.

• In fiscal year 2021, US military spending amounted to about $801 billion, in 2022 – about $877 billion, in 2023 it increased to $916 billion (+4% compared to 2022). At the end of 2024, US spending reached $997 billion (+5.7%), which is 37% of global military spending and two-thirds of total NATO spending. Thus, the US defense budget actually approached the $1 trillion mark per year. A significant part of the growth goes to modernizing weapons and supporting Ukraine. The United States sent a record amount of aid to Ukraine – direct military allocations in 2022-2024 alone amounted to about $131 billion, which is included in these total costs. remaining below Cold War levels.

• The European Union and the United Kingdom: European countries, especially in NATO, have dramatically increased their defense budgets since the start of the war. Total military spending by European countries (including Russia) in 2024 reached $693 billion (+17% by 2023), exceeding even the level of the end of the Cold War. If we take European NATO members, they spent a total of $454 billion in 2024 (30% of total NATO spending). for the first time in history, 18 out of 32 NATO countries in 2024 brought defense spending to the recommended 2% of GDP (a year earlier there were 11 such countries).

  • Germany launched a special fund of €100 billion and increased the military budget by 28% in 2024, to $88.5 billion, which brought Germany to 4th place in the world in terms of spending (after the United States, China and Russia) and 1st place in Western Europe.

  • The United Kingdom has traditionally been one of NATO's leaders in terms of spending. In 2024, the United Kingdom increased its military budget by 2.8% to $81.8 billion (about 2.3% of GDP), retaining the 6th place among the world's military powers.

  • France has increased spending from ~€41 billion in 2021 to ~€49 billion in 2024 (about $60 billion), about 2% of GDP.

  • In 2022, Poland spent 2.7% of GDP on defense, and in 2024 it already spent 4.2% of GDP (about $38 billion), planning to increase it to 4.7% of GDP in 2025. In absolute spending ($35-38 billion), Poland has overtaken all Central European countries and is approaching the level of Italy. Which causes discussions about the burden on the budget in the future.

• China and other countries: Despite being far from the theater of operations, China and a number of other states have also increased military spending amid global instability. China is the second largest military spending fund in the world, with around $292 billion in 2022, $296 billion in 2023 (+6% per year), and approximately $315 billion in 2024.India (4th in the world) spent $83.6 billion (+4.2%) in 2023, continuing to increase spending due to tensions with China and Pakistan. Saudi Arabia (~$75 billion in 2023) and Japan ($50.2 billion, +11%) also significantly increased their budgets in response to regional threats. Thus, the war in Europe triggered a domino effect, pushing military spending up globally – in 2024, its burden reached 2.5% of global GDP (against ~2.2% before the war).

Army growth and personnel costs

Mobilization and expansion of armies. The hostilities led to a sharp increase in the number of armed forces of the warring countries and stimulated the growth of the army in some neighboring states.

• Russia: During the war, Russia announced the expansion of its army three times. In the fall of 2022, ~300 thousand reservists were partially mobilized, in addition to the involvement of tens of thousands of volunteers. As a result, according to official data, the number of the Russian Armed Forces at the end of 2023 increased from ~1.0-1.1 million to 1.32 million active military personnel. 1.5 million people (out of the total strength of the Armed Forces of 2.38 million, including auxiliary personnel). If this goal is achieved, the Russian army will become the second largest in the world after China, overtaking the armies of the United States and India. However, it is not easy to ensure such growth: significant financial and human resources are required, given the high losses in the war and demographic constraints.

• Ukraine: In response to the full-scale invasion, Ukraine switched to a general mobilization mode. The number of defense forces (the Armed Forces of Ukraine, the National Guard, border guards, police) has increased from about 250 thousand active servicemen to approximately 700 thousand - 1 million people under arms. The exact numbers are classified, but it is known that only in the Armed Forces of Ukraine the number of ground forces has increased several times. At least 8 waves of mobilization were carried out. Thus, the share of the population in military service in Ukraine has become one of the highest in the world. For example, military expenditures amounted to 34% of GDP, while all tax revenues of the state are fully spent on the needs of the army (the entire civilian budget is financed by the assistance of partners). Such mobilization of human resources, despite the heavy burden on the economy, allowed Ukraine to maintain its defense capabilities.

• Other countries: There has been no direct troop build-up of this magnitude in NATO countries, but there is a trend towards a stronger armed forces. Against the backdrop of the war, Poland decided to significantly increase its army - from ~ 150 thousand to 300 thousand troops in the coming years, creating new divisions and territorial defense brigades. To attract recruits, Poland introduced preferential service ("voluntary military service") and increased the salaries of soldiers. Germany, France, Great Britain, and others still maintain professional armies without a significant increase in numbers, but are considering measures to strengthen reserves and increase combat readiness. Some Eastern European countries (Latvia, Lithuania) have resumed or expanded conscription since the start of the war.

Salary and benefits costs for military personnel. A sharp increase in the number of troops and intense hostilities led to a multiple increase in the cost of military labor, benefits and social security.

• Russia: To attract volunteers and support the mobilized, Russia has significantly increased cash allowances. Contract soldiers and mobilized are paid high salaries - about 195 thousand rubles per month (about 2.5 thousand dollars at the 2022 exchange rate) plus allowances for participation in battles. ≈According to experts, the maintenance of the mobilized costs Russia hundreds of billions of rubles per month. For example, the payment of 300 thousand mobilized persons per year is about 700 billion rubles ($10 billion). As a result, the share of items related to personnel (salaries, food, uniforms, payments to families) has increased sharply. In the draft budget of the Russian Federation for 2024, from 10.4 trillion rubles for "national defense" to 74% could be current costs (including personnel salaries), while the share of arms purchases decreased. By mid-2024, additional appropriations were requested, more than half of which were aimed at increasing funding for salaries and support for the families of the dead/wounded. Thus, the "war at the expense of the budget" led to a sharp increase in the salaries of the military and related social expenditures, making the army the de facto main employer and social donor in the country during the conflict.

• In 2022-2023, the Ukrainian government introduced a system of military allowances: all servicemen were paid an additional 30 thousand hryvnias per month (about 1 thousand dollars), and those who were on the front line were paid 100 thousand hryvnias (3 thousand dollars) in addition to their salaries. In the original budget for 2024, it was planned to allocate 74% of military spending to personnel, and only 23% to the purchase and repair of weapons. Even with foreign support, the workload turned out to be enormous: by July 2024, the defense budget had to be increased by another $13.5 billion, and more than half of these additional funds went to salaries and social support for the military. It fell on defense - first of all, on the maintenance of the army. To finance payments to the military, Ukraine had to resort to external assistance: direct donor funding of the military budget in 2023-2024 was estimated at ~10-12% of GDP annually. Despite efforts to optimize costs (for example, from 2023, allowances in the amount of UAH 30 thousand for rear units have been canceled), personnel costs have increased significantly. This point has become critically important – without external injections, the Ukrainian economy would not have been able to pay such assistance to the army of many thousands in the face of falling GDP and tax revenues.

• Other countries: In NATO countries, an increase in personnel costs was planned, mainly due to the indexation of wages before inflation. For example, in fiscal years 2023-2024, the United States planned to increase the base salary of military personnel by ~4-5% annually to compensate for price increases.Poland and a number of Eastern European countries have raised salaries and introduced bonuses for recruits to fulfill plans to increase the army. Russia has also expanded benefits for the military: credit holidays, priority for veterans when entering universities, lifetime pensions for war invalids, etc.

Military-industrial complex: defense orders and investments

The war has caused an unprecedented burden on the military-industrial complexes (MIC) of Russia, Ukraine and NATO countries. On the one hand, this led to a sharp increase in state defense orders, the expansion of weapons production and the attraction of investment in industry. On the other hand, it has identified bottlenecks such as dependence on imported components and limited capacity that take time to build.

Russia (forced military-industrial complex). Faced with high costs of military equipment and ammunition, Russia mobilized its military-industrial complex to maximum capacity. The government demanded that defense enterprises work in several shifts and increase the production of priority nomenclature - artillery shells, missiles, tanks, drones. The production of 152-mm artillery shells in the Russian Federation has increased fivefold - from 400 thousand to 2 million pieces per year. For example, electronics and optics – +32.8%, metal products – +27.8%, transport engineering (including military) – +25.5% compared to the previous year. However, independent experts note that such impressive percentages are partly due to rising prices and do not fully reflect the physical output of products. According to estimates, direct budget expenditures on the war in 2022-2025 will exceed 50 trillion rubles. (~$280 billion). This money is directed mainly to the defense industry, which makes it the main beneficiary of the current conflict. To further increase production, the state increases subsidies to defense plants, issues them soft loans, attracts workers from civilian sectors and tries to establish parallel imports of components bypassing sanctions of ammunition and simple weapons until 2024, which meets the needs of the front.

Ukraine (rearmament with external support). With the beginning of the war, the Ukrainian military-industrial complex was also rebuilt on military rails. Although the capabilities of the Ukrainian military-industrial complex were relatively modest until 2022, the war forced an urgent increase in the production of certain types of weapons and ammunition. public procurement of weapons and dual-use goods in Ukraine increased 20 times compared to 2021 Ukrainian enterprises have established serial production of drones (both reconnaissance and strike) – in 2023, the production of Ratnik, Punisher, kamikaze UAVs, etc. However, the heaviest and most technologically advanced weapons systems (aviation, armored vehicles, air defense, artillery) are mainly received by Ukraine from partners, since its own capabilities are limited. In 2022 The Ukrainian defense industry suffered serious losses due to shelling – a number of factories were damaged (for example, Azovmash, the Malyshev plant). In response, the government carried out a reform of the management of the industry: the state concern "Ukroboronprom" was transformed into the joint-stock company "Ukrainian Defense Industry" in order to attract investments and technologies from Western companies. Joint production of weapons began - service hubs and assembly plants were opened in Ukraine (for example, the Leopard tank repair center with the participation of Rheinmetall, the assembly of armored vehicles from BAE Systems). colossal external military assistance (supplies of weapons to tens of billions of dollars), Ukraine is simultaneously trying to develop its military-industrial complex in order to meet the needs of the front and lay the foundation for the future.

NATO and Western countries (a new round of the arms race). The war in Europe has forced NATO countries to sharply increase government orders for weapons – both to help Ukraine and to replenish their own stocks. The US Army has allocated $3.1 billion in an additional budget for 2024 to increase the production of only 155-mm artillery shells - from pre-war ~14 thousand to 28-40 thousand per month, and by the end of 2024 reached 55 thousand per month with the aim of reaching 100 thousand per month by 2025. New lines and factories are opening: for example, in 2023-24, ammunition assembly plants began operating in Texas and Arkansas. Also, American defense giants (Lockheed Martin, Raytheon, Northrop Grumman, etc.) received large contracts to replenish stocks of Javelin, Stinger, HIMARS missiles and produce new equipment instead of the one transferred to Ukraine. The volume of orders for the US military-industrial complex has grown so much that the revenue of the 100 largest defense companies in the world reached $592 billion in 2022, and $ 632 billion in 2023 (+4.2% in real terms). Some companies have record order portfolios: for example, Lockheed Martin has more than $150 billion.

In Europe, it turned out to be more difficult to ramp up production due to smaller spare capacities and the need for coordination between countries. Nevertheless, the European military-industrial complex also received a powerful boost. Germany has ordered hundreds of pieces of equipment as part of a 100 billion euro program: new and upgraded Leopard tanks, Puma infantry fighting vehicles, self-propelled guns, Iris-T air defense systems, missiles and ammunition - all this has loaded enterprises such as Krauss-Maffei Wegmann, Rheinmetall and Diehl for years to come. France increased the production of CAESAR self-propelled guns, Milan ATGMs, infantry vehicles; The United Kingdom has created joint procurement mechanisms: in 2023, it launched an initiative to jointly order 1 million artillery shells for Ukraine and replenish European warehouses. However, bureaucratic procedures and market mechanisms slow down Europe somewhat: private companies were in no hurry to expand production without long-term guarantees of orders. For example, France is investing €200 million in a gunpowder production line, and the EU has launched the ASAP program (€500 million) to support ammunition production in Europe. In Eastern Europe, local factories (in the Czech Republic, Slovakia, Bulgaria, Poland) have increased the production and repair of Soviet weapons for the needs of Ukraine (152 mm artillery shells, T-72 tanks, etc.). As a result, the Republic of Korea made a breakthrough: its defense exports increased from $7.3 billion in 2021 to $17.3 billion in 2022 — more than 2 times, securing Seoul's status as one of the largest suppliers of arms Export contract in the country's history. All this suggests that the war created a rush of demand in the global arms market, which benefited manufacturers around the world, from the United States and Europe to Asia.

However, the rapid militarization of the economy carries risks. In Russia, excessive concentration of resources in the military-industrial complex can lead to imbalances and overheating of the economy; in Ukraine, dependence on external supplies of equipment leaves vulnerable; in NATO countries, a sharp increase in orders provokes a shortage of components and pressure on budgets. Nevertheless, in the short term, the military-industrial complexes are on the rise, generating profits and increasing the contribution of the defense industry to GDP.

Economic consequences of the war for the participating countries

The war had wide-ranging economic consequences: from surges in inflation and trade adjustments to budget crises and changes in tax policy. Let's consider the main consequences for Russia, Ukraine, European countries, the United States and China.

On the one hand, military spending was the main driver of GDP – in 2022-2023 it partially compensated for the decline in other industries, and the official decline in Russia's GDP was moderate (-2.1% in 2022, about +1% in 2023 according to estimates). Military order ~ 13 trillion rubles in 2023 It stimulated industry by temporarily reducing unemployment and the workload of enterprises. In fact, the militaristic "transition" of the economy began – the share of defense in the budget structure increased from 14.4% in 2021 to 32.5% at the end of 2024.Inflation in Russia jumped to 12% in 2022, the ruble depreciated significantly (from ~75 to ~120 per dollar in the spring of 2022, stabilizing around 70-80 by the end of the year, and falling again to 100+ in 2023). To finance the war, the authorities were forced to increase taxes and borrowing: from 2023, the income tax for companies has been increased, the application of VAT on small businesses has been expanded, and an increased personal income tax rate for the rich has been introduced. In addition, the Central Bank partially monetized the deficit - in fact, it included a printing press that covertly fueled inflation. In 2023, the budget deficit of the Russian Federation reached ~2% of GDP (≈4 trillion rubles), which is twice the plan. At the same time, oil and gas revenues have declined due to sanctions and price restrictions (the share of oil and gas fell to 5% of GDP in 2025 from 10% previously). Western sanctions cut Russia off from Western technology and finance: imports of high-tech products (microelectronics, machine tools) fell sharply, many foreign companies left. Oil and gas exports to Europe collapsed: pipeline gas supplies to the EU fell by more than 80%. To compensate for this, Russia redirected oil exports to Asia at deep discounts (Urals is sold at a discount of ~$20 to Brent). revenues due to the price shock, But in 2023-24, this effect has come to naught. The structure of the economy has changed – the growth of the military and related industries (production of weapons, uniforms, food for the army) is due to a reduction in investments in civilian sectors. The state is actually reorienting the model to the mobilization one: price control (freezing food prices, tariff regulation), compulsory licensing The production of spare parts without the consent of copyright holders, the involvement of prisoners in defense factories - all these are elements of a return to command methods. In the regions, especially the poor, the war has increased socio-economic tension: many able-bodied men have been mobilized or died, the burden on regional budgets is growing (they have to finance the equipment of the mobilized, payments to families). In 2022-2023, the regions spent more than 240 billion rubles to support the army, which is very significant for depressed areas. In general, the war has become the most difficult test for Russia: the militarization of the economy keeps it afloat now at the cost of a future recession. According to analysts, in order to maintain such a high share of military spending, the Russian Federation will either have to build up imbalances (with an increase in debt and inflation) or switch to a Soviet-style mobilization economy. Especially if hostilities drag on.

In 2022, Ukraine's GDP fell by 29.1% – industry, infrastructure and agriculture were badly affected by the hostilities. Millions of citizens became refugees (up to 5 million went abroad), unemployment rose sharply. Inflation in 2022 reached 26.6% year-on-year due to the destruction of logistics and emission financing of the budget. Break. Ukraine's budget for 2023 was originally planned with expenditures of UAH 2.64 trillion and a deficit of UAH 1.29 billion, but in fact expenditures exceeded UAH 3.94 trillion ($95.5 billion), and revenues amounted to only UAH 2.34 trillion ($56.7 billion). The deficit of >20% of GDP was covered by external borrowings and grants. Almost every month Western countries allocated $3-5 billion in direct financial support to Ukraine for the payment of salaries, pensions, etc. (including military pensions). For example, the United States provided $22.9 billion in direct budget support until May 2024, and the EU received more than €31.5 billion in financial assistance in 2022-23. The budget structure has changed dramatically: more than half falls on defense and security, while peace articles (education, medicine, infrastructure) are financed mainly from external sources or sequestered. Taxes were raised only pointwise (for example, excise taxes on fuel were returned in the fall of 2023), the government tried not to stifle business excessively. Instead, the printing press turned on: the National Bank of Ukraine printed about UAH 400 billion in 2022 to cover the needs of the Treasury, which accelerated inflation. Sanctions against the Russian Federation have indirectly hit Ukraine due to the loss of traditional sales markets (before the war, a significant part of Ukrainian metal exports went to Europe for processing with Russian gas, now these chains have been destroyed) and rising energy prices. In 2022, Kyiv spent an additional billion dollars on fuel imports to replace capacity lost due to hostilities (for example, it bought electricity from the EU). Structural changes: Ukraine's economy has become much more militarized and dependent on the West. The military sector and related services (logistics, equipment repair, IT drone development) have grown, but the share of the consumer sector and small businesses has fallen. from East to West of the country, supports critical industries (agriculture, energy) with subsidies and cheap loans. Despite the war, in 2023, thanks to aid and partial adaptation, the economy began to revive – the decline in GDP slowed down to ~-3.5%, and in 2024 growth of 1-3% was expected. But external support remains a key factor in survival: in total, partners (US, EU, IMF, etc.) have allocated more than $170 billion (including military, financial and humanitarian) to Ukraine from 2022 to 2024 . These injections reach 50-60% of Ukraine's GDP and compensate for the economic losses from the war. Nevertheless, the country is increasing its external debt (from 50% to ~90% of GDP in 2022-24) and depleting domestic resources. according to various estimates, from $411 billion (World Bank, estimated at the beginning of 2023) to $750 billion or more. Thus, the war has put the Ukrainian economy on an extremely military track: everything that can go to the front, the rest is closed by the allies. Without this support, Ukraine's financial system would be insolvent, but with it, the economy is holding on and even partially rebuilding to the new realities of war.

European Union and Great Britain: the war has had a sharp impact on the economies of European countries due to the energy crisis, inflation and sanctions. In 2022, the European Union experienced the most powerful energy shock since the 1970s: gas prices soared 5-10 times, electricity prices 3-5 times, reaching a peak in the fall of 2022 in 2022 (compared to 2.6% in 2021), and in some countries it exceeded 15-20% (Estonia 19%, Lithuania 19%, Latvia 17%). The UK is facing the highest inflation in the last 40 years – in October 2022 it exceeded 11%, on average ~9.1% per year. The main factor is the increase in energy and food prices associated with the war (Russia and Ukraine are major suppliers of oil, gas, grain and fertilizers to the world market). Governments were forced to take unprecedented measures: in total, European countries spent more than €700 billion on subsidizing energy prices and support for citizens in 2022-23 (according to Brueghel's estimates) – from direct payments to the population to business compensation and tariff freezes. For example, Germany launched a €200 billion "Protective Umbrella" to reduce gas and electricity prices, France froze gas tariff increases at +4%, Spain and Portugal introduced a gas price cap for electricity generation. Despite these measures, the average energy costs of European households in 2022 were 90% higher than a year earlier. The EU's spending on energy imports has risen sharply: it exceeded €400 billion for gas imports in 2022 alone (3 times more than in 2021). This money is actually a net outflow of funds from the EU, which enriches exporters (for example, Norway, the USA, Qatar instead of Russia).

European companies have lost the Russian market (before the war, the EU exported €89 billion worth of goods to the Russian Federation in 2021, and less than €45 billion in 2023). German automakers, mechanical engineering, French luxury brands, farmers in the Baltic States and Finland (previously focused on the Russian Federation) were especially affected European importers quickly found a replacement: the share of Russian gas in the EU fell from 40% to less than 10%, but imports of liquefied natural gas (LNG) from the United States and Qatar, pipeline gas from Norway and Algeria increased sharply. Russia was a major supplier of coal - it was replaced by purchases from South Africa, Australia, Colombia. Oil imports from the Russian Federation are limited to a price ceiling of $60 – European traders have almost stopped buying it, As a result, the trade balance of a number of countries has worsened : Germany in 2022 received a trade deficit (€-7 billion) for the first time in a decade due to expensive energy imports, although it usually had a big plus.

The structure of the budgets of European countries has changed - defense and support for the economy in times of crisis have become a priority. Many governments have increased spending, which has led to an increase in deficits and debts. Germany in 2022-23 moved away from the zero deficit policy and increased debt to finance aid and defense funds. Military budgets have been growing (as noted above), and although their share in GDP is still small (2-3%), in absolute terms it is tens of billions that had to be found. Some countries have introduced new taxes to cover costs: for example, Italy and Hungary – taxes on excess profits of energy companies, Germany – a one-time levy on energy companies. Subsidies and social benefits (for energy, reception of Ukrainian refugees, etc.) have increased the burden: according to the IMF, in general, budget support measures in response to the crisis cost Germany 7.3% of GDP, Britain ~6% of GDP, and Italy ~5.5%. In the short term, this softened the blow to the population – Europe went through the winter of 2022/23 without massive blackouts and riots. In 2023, gas prices normalized (by spring they fell below pre-war $50/MWh), Inflation has started to decline (in the Eurozone to ~2.9% at the end of 2023). But the price of this stabilization is the growth of public debts and the still high core inflation (especially in the food sectors).

Separately, it is worth noting assistance to Ukraine as a factor: European countries (EU institutions and individual states) have allocated a total of more than €70 billion to support Ukraine (military, financial, humanitarian) in 2022-2023. For example, according to the Kiel Institute, by August 2023, EU countries and European institutions have committed a total of $84 billion, including ~€20 billion in military aid. The United Kingdom provided more than £4 billion in military aid in 2022-23, second only to the United States. These expenditures are also borne by budgets, although they remain manageable relative to GDP (~0.2-0.3% of GDP for the EU).

In general, for Europe, the war meant a slowdown in economic growth (the eurozone grew by only 3.5% in 2022 instead of the expected ~4.5%, and in 2023 – about 0%, some countries slipped into recession), high inflation, and the redistribution of resources to defense and energy security. A positive long-term effect may be increased energy independence from the Russian Federation and investment in the military-industrial complex, but in the short term, this required high costs.

USA: For the American economy, the war was not as painful as it was for Europe, but it still had a tangible impact. Inflation in the United States accelerated to 8.0% in 2022 (the highest in 40 years), partly due to the war – the rise in global oil prices (to $120 in June 2022) led to a jump in gasoline prices, and rising food prices hit American consumers. The Federal Reserve reacted with aggressive rate hikes, cooling the economy. The US energy sector, on the contrary, benefited: Europe's rejection of Russian gas opened up a huge market for American LNG producers. LNG EXPORTS FROM THE UNITED STATES to the EU in 2022 increased by 137% (to 56 billion m³), making the United States the largest LNG exporter in the world. Oil companies received super profits: the combined profits of ExxonMobil, Chevron, ConocoPhillips for 2022 exceeded $100 billion, which is a historical record, thanks in part to the war. U.S. GDP continued to grow (2.1% in 2022), but military aid to Ukraine and an increased U.S. presence in Europe mean additional budget spending. From the beginning of 2022 to the end of 2024, Congress approved $113 billion in aid to Ukraine, including ~$47 billion for weapons and training, ~$26 billion in direct budget support for Kyiv and refugees, ~$16 billion in humanitarian aid, and ~$14 billion in strengthening its own forces in Europe. it is only about 0.15% of the total GDP of the United States in three years, so the macro effect is quite minimal. Nevertheless, this contributes to the growth of the budget deficit (which exceeded 5% of GDP in fiscal year 2023). The expansion of military orders, as noted, supported the American military-industrial complex and arms exports. The share of the United States in world arms exports reached 40-45%, strengthening the position of American companies in European markets, where their equipment replaces Russian ones. Structurally , the US economy has changed little – its size and diversification are such that even a major war abroad has little effect. However, political attention to spending control has increased: in the fall of 2023, there were disputes in Congress over the continuation of funding for Ukraine. Tensions in relations with China have also increased, but this is already a geopolitical consequence of the war (weapons), while incurring relatively small costs in the form of an increase in the cost of living for the population in 2022 and increase in budgetary obligations for military assistance.

China and other countries: The Chinese economy has indirectly benefited from the war while maintaining a neutral wait-and-see attitude. Russian oil and gas began to flow to China at a discount in record volumes: in 2022, China increased oil imports from the Russian Federation by ~10%, and gas by 50%. In 2023, Russia became the largest supplier of oil to China, overtaking Saudi Arabia. The total trade turnover between Russia and China in 2022-23 soared to a record $190 billion per year - against the backdrop of the departure of Western firms, Russia began to buy more Chinese equipment, electronics, cars. China has not joined the sanctions, but it does not explicitly violate them either: it sells civilian drones and dual-use electronics to Russia, but avoids direct deliveries of lethal weapons (for fear of secondary sanctions). The impact of the war on China is twofold: on the one hand, the rise in global commodity prices in 2022 hit Chinese factories (which depend on energy imports - oil, LNG), slowed down growth (in 2022, China's GDP is +3%, which is below the target). On the other hand, the United States and Europe, focused on Ukraine, could be distracted from countering China, which Beijing perceives as a strategic window. diplomatic activities, proposing a "peace plan" for Ukraine, but at the same time strengthening ties with Russia (Xi-Putin summits, increased trade). Other developing countries have been mixed off: food importers (Egypt, Turkey, Bangladesh) have had a hard time due to rising grain prices and the danger of disruptions (blockade of Ukrainian ports), while commodity exporters (OPEC countries, Australia, Brazil) have benefited from the price rally. For example, the oil sector of the Gulf countries received hundreds of billions in additional revenues – Saudi Arabia's total oil profit in 2022 increased by 50%, which gave the kingdom's budget a rare surplus. Some countries, like India, took advantage of the situation: India bought cheap Russian oil in record volumes and at the same time sold petroleum products to Europe, receiving a margin. Also, India, Turkey and China occupied the niches of Western companies that left the Russian market, increasing the export of cars, electronics and consumer goods to the Russian Federation. Thus, on a global scale, the war has redistributed wealth flows: Europe paid more for energy, Russia lost premium markets and bought more through gray schemes, and other regions benefited from changes in prices and trade directions.

Global economic effect of the war: how much money did the war "bring"?

The Russian-Ukrainian war of 2022-2024 led to a colossal flow of financial resources into the defense sector and related industries, effectively creating a new military "market" on a global scale. Let's try to assess what amounts of funds are in question and what contribution it has made to the economy.

Rising global military spending. As noted, global military spending increased from $2.16 trillion in 2021 to $2.718 trillion in 2024, that is, annual spending increased by about $558 billion in three years. In 2023, global military spending was $105 billion higher than in 2022, and in 2024 it was another ~$275 billion more than in 2023 (an increase in real terms of 9.4%). These additional hundreds of billions are actually "generated" by the war – directed to weapons production, maintenance of the army, scientific work, etc., and are included in the GDP of the respective countries. For example, according to IMF estimates, without the war, global GDP growth in 2022 could have been ~1 percentage point higher – the conflict slowed down the global economy (mainly due to inflation), but at the same time stimulated certain industries (oil and gas and defense) in other countries.

Defense industry and GDP. The military-industrial sector is on the rise all over the world. According to SIPRI, the combined revenue of the world's 100 largest military-industrial companies in 2021 was $592 billion, and in 2022 it was $592 billion (in real terms, stagnation due to logistical problems), but in 2023 it increased to $632 billion, that is, an increase of ~$40 billion per year fell on the arms industry. By 2024, this trend is intensifying, with many companies reporting double-digit sales growth. For example, the British BAE Systems increased defense orders by 30% in 2023, and the German Rheinmetall doubled its defense portfolio (up to €30 billion). Thanks to export megacontracts, South Korea received tens of billions of new orders from the war (it was mentioned, with Poland alone – $>12 billion). American giants of the military-industrial complex will also benefit: in 2022-24, Lockheed Martin signed new contracts (including for equipment for NATO) for $>65 billion, Raytheon – for $32 billion, etc.

Impact on world GDP. If we summarize the direct military expenditures of the main players: for 2022-2024. Russia spent ~$300 billion, Ukraine ~$150 billion of its own funds (not counting aid), the United States – ~$2.8 trillion (but most of it would have been spent without the war, the increase is estimated at ~+$100 billion to the plans), Europe (NATO) – an additional ~$200-250 billion on top of pre-war trends, other countries – tens of billions more. A significant part of these funds is payment for weapons, ammunition, fuel, that is, the income of manufacturers. For example, in 2022-2023 alone, more than $60 billion was allocated for the supply of weapons to Ukraine around the world (this money was received by factories in the United States, Europe, and South Korea). Ukraine received another $60 billion in military aid in 2024 – it is used by equipment manufacturers. Thus, the global "military GDP" increased significantly. ~$130 billion in 2024) is a direct contribution to global industrial production and services. For comparison, the entire world GDP is ~$105 trillion, that is, so far the impact is spot (~0.1%), but for some countries it is large (in the Russian Federation, the military surge in 2023 amounted to +4-5% of GDP due to public spending, in Poland the growth of the defense industry is +1-2% of GDP, in the United States it is less). Indirectly, the war also "caused" a redistribution of income: energy exporters (OPEC, the United States) received in 2022-2023. Excess profits of about $500-800 billion due to high prices, much of which went to dividends, new investments or sovereign funds. For example, the Saudi Arabian Welfare Fund was replenished by $80 billion, this money is a by-product of the war that gave a boost to the economies of these countries.

At the same time, the war also caused net damage to the global economy: the destruction of Ukraine (minus hundreds of billions of GDP), a drop in investor confidence, difficulties with trade (world trade increased by only 2.7% in 2022 compared to 10% in 2021), a food crisis in poor countries, and the cost of helping refugees (there are ~4 million Ukrainian refugees in Europe, €30-40 billion was required to receive them). Therefore, it is impossible to talk about the war as an unambiguous incentive – this is For some, this has created a "war rent", while for others, it has created losses. Nevertheless, there is an undeniable boom in the narrow defense and security sector. It can be said that the war "generates money" for gunsmiths and subcontractors: it is estimated that until 2024. The world arms market (export-import operations) exceeded $100 billion per year, and taking into account domestic costs — trillions, as shown above.

The final conclusion: the Russian-Ukrainian war was the biggest economic shock of the early 2020s. It led to the largest increase in military budgets in a decade, the return of weapons to the economies of a number of countries and a large-scale redistribution of resources. Trillions of dollars were spent on the war - some countries are depleting their economies, others are making capital. 2.5% in 2024 (vs. ~2% previously). The economics of war is a heavy burden for Ukraine and Russia, a test for allied budgets, but at the same time a stimulus for the defense industry and related industries around the world.

Источники:

1. SIPRE, IISS – Military expenditures for 2022-2024:

2. Ministries of Finance, state budgets of the Russian Federation and Ukraine – data from budgets and applications:

3. Think tanks (CEPA, OSW, Carnegie) – cost structure and impact assessment:

4. IMF, World Bank – macroeconomic indicators and impact of the war:

5. Kiel Institute, Politico – amounts of aid to Ukraine:

6. Reuters, Defense News – data on defense production and contracts:

7. Reuters, Bloomberg – Impact on Energy and Trade: and Others

 

Ruslan Bortnyk, Oksana Krasovska for UIP