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  • 30.08.2022

21. Information event at the Federal Ministry for Economic Affairs and Climate Action: The war and its economic impact

On August 30, the first part of the 21st information event on government consultancy at the Federal Ministry for Economic Affairs and Climate Action (BMWK) with the German Economic Team took place. The focus was on Ukraine, Moldova, Georgia and Armenia.  The event was moderated by Mrs. Yildiz Götze, Head of Unit at the Federal Ministry. Dr Andreas Nicolin, Head of Subdivision for the promotion of foreign trade, held the opening remarks.   

As expected, the main topic of the event was the war in Ukraine and its impact on neighbouring countries. Dr Bertram von Moltke, envoy at the German Embassy in Kiev, gave an introductory lecture on the political situation in Ukraine, which embedded the following presentation on economic developments in the political context.   

The Ukrainian economy as a whole is severely affected by the consequences of the war. Compared to the previous year, economic output is expected to fall by 32%. This is not only due to the immense destruction of economic infrastructure, but also to the collapse of exports as well as the significant refugee movements and the loss of income for many Ukrainian households. In addition, the country is suffering from the consequences of high inflation as well as a massively increased budgetary deficit due to the state of emergency caused by the war. While GDP forecast is fraught with uncertainty, the need for a comprehensive post-war reconstruction programme is beyond question. A reconstruction plan, largely initiated and driven by the EU, must also include political reforms. In addition, the country will need to receive financial assistance from its partners for the foreseeable future.   

 The direct and indirect effects of the war have implications for the entire post-Soviet space. In particular, attention is focused on energy price inflation, the weakening of the Russian economy as a result of European and American sanctions policies, and migration flows from Ukraine and Russia. Moldova, Georgia and Armenia were examined on the basis of these three parameters and the results were presented at the information event.   

 Moldova is strongly affected by all three of the above-mentioned crisis phenomena. The country is not only a main destination for Ukrainian refugees, but also highly dependent on Russian gas imports. Import prices have risen enormously as a result of a new supply contract with Gazprom, which manifests itself in high inflation, among other things. One possible strategy could be energy efficiency measures in existing buildings to reduce consumption, indirectly relieve the state budget and reduce dependence on Russia. To this end, the generation of electricity from gas has also to be reconsidered. In the agricultural sector, the country benefits as an exporter from increased grain prices on the one hand, but on the other hand, increased input prices and logistical problems as a result of the war make production more difficult. In addition, exports of agricultural products to Russia have declined, albeit to a lesser extent than originally feared. Overall, Moldova is in a phase of economic stagnation and high inflation (“stagflation”).  

The outlook for Georgia is much more positive: the country is benefiting from an influx of Russian and Belarusian labour migrants, and private consumption has also recovered. Furthermore, goods exports have also increased in the current year and turnover from services exports has almost returned to pre-Corona levels. Thanks to a long-term supply contract with Azerbaijan, the country is independent from Russian gas imports, although the increased oil prices have not left Georgia unscathed. Georgian exports to Russia are hardly affected by the crisis, while remittances might decrease slightly and tourism from Russia will probably be negatively affected.   

Like Georgia, Armenia benefits from the influx of Russian migrants. GDP is expected to grow by 4.6% year-on-year in 2022, driven mainly by private consumption and investment, as well as the aforementioned influx of Russian migrants. The manufacturing and construction sectors are also developing positively. The appreciation of the Dram against the US dollar is dampening inflation. Overall, the impact of the war in Ukraine on Armenia seems to be manageable or even slightly positive. Although Armenia is heavily dependent on Russia in the energy sector, the effects have been limited so far thanks to guaranteed fixed prices until the end of the year in the contract with Gazprom. The price of Russian oil, on the other hand, has risen only slightly. Overall, the impact of the war on Armenia is moderate to limited. 

 We like to thank all participants for their presence and various contributions to the discussions. We would also like to thank envoy Dr. von Moltke for his introductory remarks.