One year since Russia’s invasion – Europe faces three changes as it settles into new reality
-
One week from now, exactly one year has passed since Russia started its unprovoked attack against Ukraine.
-
In our view, the war has brought along three important changes. First, it has fundamentally changed the way we perceive security and peace in Europe. Second, it has forced changes in our economic model, and third, it has changed the priorities of businesses and policymakers who prepare for the future.
A reality check for Europe
When Russia started its invasion of Ukraine in the early hours of Feb 24th last year, the European security order changed overnight. Media outlets showed dark images of burning buildings in Kyiv, providing a very unpleasant reminder for Europeans that a military conflict is not only a thing of the past.
Wars, as distant as they have been to an average European for long, cause massive losses on human capital. Since the start of the war, more than 7,000 Ukrainian civilians have lost their lives and more than 11,000 have been injured. The war has displaced more than 14 million people. The people who are now deceased, injured, displaced or mobilised could have been productive, both for the private sector and for their country. Some of them will of course build a new life and start to work elsewhere but it will take time.
Despite the discomfort a war brings, it is also a healthy reminder. All conflicts cause massive human suffering and economic losses, but the ramifications from conflicts do not respect country borders. According to the IMF, Ukraine is estimated to have lost at least one-third of its GDP last year, while the OECD has estimated total costs from the war at USD 2.8 trillion in lost output for the global economy. That is more than ten times the size of the Ukrainian economy.
Rethinking our economic model
The losses for the global economy mostly come from higher energy and food prices, as well as disrupted supply chains. Europe now grapples with an acute energy crisis that could last for years. Before the war, 25% of the EU’s imported petroleum and 39% of the natural gas originated from Russia. By the third quarter of 2022, these shares had fallen to 14% and 15% respectively. After the EU imports ban on Russian oil entered into force in December 2022, this share has shrunk even further.
For decades, many European countries fostered close economic ties with Russia, and industries in many large European countries relied on cheap, fossil energy from Russia. The war has forced Europe to rethink; it has triggered a race to build more emission-free energy production capacity, not only in Europe but globally. The European Commission now plans an additional investment of EUR 210 billion on energy independence and security by 2027. Cutting Russian fossil fuel imports should save an additional EUR 100bn.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
