Economic Collapse Crisis for Both Russia and Ukraine Amid War

[Image source=AP Yonhap News]

[Asia Economy Reporter Cho Hyun-ui] Concerns are rising that the economies of Russia and Ukraine could face collapse if the war between the two countries prolongs.

The International Monetary Fund (IMF) warned on the 14th (local time) that Ukraine's economy could shrink by up to 35% this year.

During the 2014 Crimea crisis, the contraction was in the single digits. However, even if the current war is resolved immediately, it is projected to decline by at least 10%.

The IMF stated, "If physical capital losses and refugees increase further, it could cause significant production contraction, including the collapse of trade flows and lower tax revenues."

Russia's economy, which is under strong sanctions from the West including the U.S. and Europe, is expected to regress by at least 30 years, falling back to the level of the former Soviet Union.

U.S. financial media CNBC cited experts on the same day, reporting, "The standard of living in Russia has dropped by at least five years due to this war."

It is particularly analyzed that the expulsion of major Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and the freezing of euros held by the Russian Central Bank were fatal blows.

CNBC evaluated, "The construction of Russia's market economy, which began during former Soviet President Mikhail Gorbachev's era, has failed overnight," adding, "Decades of efforts to integrate the Russian economy into Europe have ended due to the withdrawal of major global companies from Russia and various Western sanctions."

The possibility of a collapse of the ruble cannot be ruled out either. The Russian government must pay interest amounting to $117 million (approximately 144.5 billion KRW) on dollar-denominated government bonds on the 16th.

Russia has stated it will not pay, but even if it does, it plans to pay in rubles. However, major foreign media explain that payment in rubles is effectively no different from a default.

If an actual default occurs, it would be Russia's first international default since the 1917 Bolshevik Revolution. Maximilian Hess, a Russian economic expert and researcher at the Institute for Foreign Policy Studies, warned of the possibility of a ruble collapse, saying, "Russia's fundamental problem is that it does not know how large the losses ahead will be."

This content was produced with the assistance of AI translation services.