Macroeconomic consequences of the war in Ukraine on Central and Eastern European economies: a SVAR analysis

Abstract

This paper investigates the short-term macroeconomic effects of the Russian invasion of Ukraine in February 2022 on the economies of Bulgaria, Czechia, Hungary, Poland and Romania and compares these effects observed in these countries with those recorded in Germany, France and Italy. The analysis relies on the estimation of Bayesian SVARs for each economy with the war shock identified using the Geopolitical Risk Index. Simulations show that, by the end of 2022, the war contributed to a rise in inflation by 0.3-0.8 percentage points and a lower GDP by approximately 0.3 percent compared to the counterfactual ‘no-war’ scenario. Our findings suggest a similar impact on economic activity and a larger impact on inflation in CEE countries compared to Western European economies. For core inflation, the results indicate a smaller impact than for headline inflation, but one that proves more persistent.