How the war in Ukraine unfolds in its second year will be decided as much by dollars and cents (or rubles and hryvnia) as by bombs and bullets, say experts who warn the economic battlefield in Eastern Europe has become a critical front in the conflict.
Ukrainian President Volodymyr Zelenskyy’s repeated calls for donations of weapons continue to dominate headlines as the Russian Army carries on a grinding offensive in the eastern Donbas region.
“Ukrainians, when I talk to them, they say there are three fronts to the war,” said Matthew Schmidt, an expert at the University of New Haven Connecticut, who also taught at the U.S. Command General Staff College. “There’s the eastern front, there’s the southern front, then there’s the economic front.”
On Monday, U.S. Treasury Secretary Janet Yellen visited Kyiv to reaffirm the American economic aid crucial to keeping the Ukrainian government afloat and continuing the war effort.
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“I know people talk about war in terms of the battlefield, right?” said Schmidt, who wrapped up his own visit to Kyiv last weekend. “They talked about tanks and planes and troop movements. I taught military theory [at the command college] and I can tell you what we talked about was politics and economics.”
The Ukrainian economy “cratered” after Russia’s full-on invasion last year, said Schmidt — a roughly 30 per cent contraction driven by the displacement of people and businesses and the attacks on infrastructure.
The Russian military’s reputation has taken a massive hit due to its failure to conquer Ukraine. But when you consider the drive to exhaust Ukraine’s economy, said Schmidt — an aspect of Russia’s war efforts that rarely gets talked about — the results look much different.
A woman cries in front of a building that was destroyed by a Russian attack in Kryvyi Rih, Ukraine, on Dec. 16, 2022. (Evgeniy Maloletka/The Associated Press)
“If you look at the purpose of the Russian kinetic force, it’s actually achieved a lot because its purpose is not just to kill Ukrainians but to crater the economy, and then create an economy to change the political situation,” he said.
The Ukrainians themselves realize they’re fighting an economic war for survival, Schmidt said — which is why Zelenskyy’s government recently wiped out half the regulations required to open a new business in Ukraine.
In a very real sense, Schmidt said, the war has been reduced to a question of which economy will collapse first — Ukraine’s or Russia’s.
Howard Shatz, a senior economist at the U.S non-profit think-tank RAND Corporation, said Russia’s economy has performed better than expected during the war, despite the effect of western sanctions.
Customers queue at a currency exchange kiosk in Moscow on Feb. 28, 2022. The Bank of Russia acted quickly to shield the nation’s $1.5-trillion economy from sweeping sanctions. (Andrey Rudakov/Bloomberg)
Right before the full invasion, the Bank of Russia had been projecting that the country’s 2022 gross domestic product would rise by two or three per cent. Right after troops crossed the border, the bank projected Russian GDP would fall by eight or 10 per cent.
For Russia, a ‘slow degradation’
The World Bank and the International Monetary Fund issued similar forecasts.
By October, the Bank of Russia was saying the country’s GDP in 2022 would “only fall by three or three-and-a-half per cent, something close to what happened [with] COVID,” said Shatz.
Higher-that-anticipated world oil prices have helped to cushion Moscow’s economic slide. They’ve mitigated the effects of western sanctions — the ones many world leaders, including Prime Minister Justin Trudeau and U.S. President Joe Biden, predicted would bring the Kremlin to its knees.
Shatz said he believes the sanctions will bite more in 2023 than they did last year but still won’t be the economic “smart bomb” the West was hoping for.
“I don’t think there’s going to be, you know, a switch [in the Russian economy], where all of a sudden it’s falling off a cliff,” he said. “I think what we’re looking at is a slow degradation.
“We’re looking at a downward slope in the Russian economy. Because bit by bit, it’s just going to fall behind the West more and more in the level of technology.”
For Ukraine, it could have been much worse
In Kyiv, the stocktaking among economic experts is mixed. On the one hand, there’s a sense that the 30 per cent plunge in GDP could have been worse, given the circumstances.
Given the mass exodus of Ukrainians to other countries, the roughly 5.3 million people displaced within Ukraine and the massive damage to infrastructure, including the electricity grid, a 30 percent drop is a “very good result, actually,” said economic analyst Yuliya Pavytska.
Tetyana Safonova, 61, sits with her cat Asya as she looks at her mobile phone during a power outage on Oct. 20, 2022, in Borodyanka, Ukraine. (Paula Bronstein/Getty Images)
It helped that Ukraine’s central bank moved decisively early in the war to keep the country’s financial institutions solvent, she added.
“We didn’t have any bank runs,” said Pavytska, an analyst at the Kyiv School of Economics.
She said she hopes the economy has hit bottom now and can begin to grow again. As late as last fall, Ukraine’s central bank had been predicting four per cent GDP growth for 2022.
That changed when Russia began blowing up the electricity grid.
Those attacks led to a lot of suffering as Ukrainians struggled to cope with mid-winter blackouts. But the destruction of up to half of the national grid also had dire economic consequences, forcing the central bank to revise its GDP projection for 2022 to roughly 0.3 per cent.
“Definitely, the pressure on the economy is huge,” said Pavytska.
“And definitely Ukraine is now relying on the West, in terms of financial aid, to cover the expenditures. But this doesn’t mean the Ukrainian economy will not survive in these circumstances.”
WATCH | Mariupol’s displaced plot their return:
Living in exile, Mariupol leaders fight for their city’s future
12 hours ago
Duration 2:41
As Russia tightens its hold on the occupied Ukrainian city of Mariupol, its government leaders are living in exile. They refuse to give up on the city or its residents.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
