Ukrainian migrants are boosting the European economy. What will happen to Ukraine without them?
The Russian invasion of Ukraine has triggered one of the largest humanitarian crises in Europe since World War II. The war has forced tens of millions of Ukrainians to change their place of residence, with about five million of them fleeing across the western border to find temporary refuge.
Refugees usually become a burden for the countries that host them. They require considerable expenditures for their support and adaptation. However, the wave of refugees from Ukraine may be an exception to this rule.
The National Bank has studied the impact of the wave of refugees from Ukraine on the EU countries and concluded that Ukrainians have revitalized their economies and mitigated the impact of the new economic crisis that is sweeping the planet. They are quickly adapting to new conditions, looking for work and paying taxes.
However, what has become an asset for the EU has turned out to be a loss for Ukraine’s economy.
One of the first consequences of the migration wave is financial. Millions of Ukrainians, having gone abroad, started paying with their Ukrainian bank cards, which led to a large-scale outflow of currency.
However, the NBU later froze the official exchange rate and imposed strict currency restrictions. This made it possible to keep the situation relatively under control. However, the state had to pay a price for this conditional stability, having “burned through” more than USD 28 billion of foreign exchange reserves in 2022.
Ukrainians abroad will continue to put pressure on Ukraine’s foreign exchange market for a long time.
“This outflow will decrease in 2023, unless there is an additional large wave of refugees. However, it will not be completely exhausted, because some refugees will work remotely for Ukrainian employers and receive support from men who work in Ukraine or serve in the Armed Forces,” said Hlib Vyshlinsky, Executive Director of the Centre for Economic Strategy.
However, millions of Ukrainians leaving Ukraine to go abroad has affected not only financial stability. The labor market, consumption, and production, and thus gross domestic product, have been much more significantly affected by the migration wave.
According to preliminary estimates by the Ministry of Economy, Ukraine’s GDP could fall by 30.4% in 2022. Although this is significantly less than economists predicted at the beginning of the full-scale war, it is the largest drop since independence.
Of course, the significant decline in the Ukrainian economy was primarily caused by the destruction of steel mills, electricity problems, and the blocking of Ukrainian ports in early 2022. However, large-scale migration also contributed.
“Forced migration has a negative impact on economic activity, primarily through the aggregate demand channel. If forced migrants work remotely for Ukrainian companies, they spend their savings and current earnings abroad, not in Ukraine,” Taranenko explains.
Consumer demand was the key driver of the economic growth in Ukraine until 2022. The effective demand of Ukrainians stimulated the production of goods and services, contributed to companies’ earnings, job creation, and the growth of the quality of life. The outflow of a significant number of solvent Ukrainians has been a severe blow to the economy.
“The total impact of forced migration could have been in the range of 10% of GDP, but most of these refugees are from the occupied territories, which are not currently included in GDP. Therefore, the impact was probably much smaller,” Vyshlinsky believes.
Material from Ekonomichna Pravda