The return of Ukrainian refugees could cause significant damage to the economy of Eastern Europe

Ukrainian refugees made a significant contribution to the development of the economies of the European countries that accepted them during the war. This wave of migration has not only been a challenge, but also brought numerous benefits to countries such as Poland, the Czech Republic, Hungary and others. Thanks to Ukrainian workers, these economies have been able to overcome labor shortages, support economic growth, and even reduce unemployment to historic lows. However, the prospect of Ukrainians returning to their country after the end of the war poses new problems for the economies of Eastern Europe, which have become largely dependent on this workforce.

Contribution of Ukrainian refugees to the economy of Europe

“The countries of Eastern Europe are constantly facing various economic challenges. For these countries, another problem may be added if peace is achieved in Ukraine – a tough labor market and an increase in inflation due to the return of refugees home.” – writes Reuters.

Since the beginning of Russia’s full-scale invasion of Ukraine, more than 4.3 million Ukrainians have found refuge in the countries of the European Union. According to Eurostat, the largest share of refugees fell to Poland (22%) and the Czech Republic (9%).

“Part of the economic success in many countries is due to Ukrainians who have moved there in the last two years. Now that the war is hopefully over, of course, there is a good chance that these people will return to Ukraine and leave a gap in the labor markets, such as in Prague, Bratislava and Warsaw, and it will be a challenge to replace,” – said Christian Petter, Head of Austria and Central and Eastern Europe at J. Safra Sarasin.

Ukrainians work in many industries, including construction, manufacturing, agro-industry, and the service sector. Their contribution became decisive in maintaining the pace of economic growth. For example, according to Raiffeisen Bank International, economic growth in Central and Eastern Europe in 2024 was 2.2%, which is significantly higher than the average in the Eurozone (0.8%). Poland’s unemployment rate hit an all-time low and wages rose 10% in response to labor demand.

Potential consequences of the return of refugees to Ukraine

After the signing of the peace agreement with Russia, many Ukrainians plan to return home. A survey conducted by the Central Bank of Poland showed that 59% of refugees are ready to return to Ukraine after the end of the war. This can create significant challenges for the economies of Eastern European countries:

• Labor shortage. The outflow of workers from Ukraine will create a gap in labor markets, especially in sectors that depended on migrants.

• Rising inflation. A decrease in the supply of labor may increase the cost of labor, leading to higher prices for goods and services.

• Demographic challenges. Central and Eastern Europe is already facing the challenges of an aging population and a shrinking workforce. The loss of Ukrainian workers will only deepen these problems.

Potential trade wars triggered by Donald Trump’s tariff promises complicate that model, especially amid high public debt. According to data from Erste Group, the debt-to-GDP ratio in Poland, Romania and Slovakia may continue to rise. Poland’s budget deficit last year, boosted by defense spending, was around 5% of GDP, above the EU’s target of 3%.

The loss of workers will increase the pressure. In November, Poland’s central bank published a survey of Ukrainian migrants, which showed that only 2% of refugees and 1% of pre-war migrants would like to return to Ukraine in less than a year. However, these figures rise to 59% and 34%, respectively, at the end of the war.

The unemployment rate in Poland is at a record low, which contributed to a 10% increase in wages last year. The Czech government has warned that future labor shortages threaten the economy, and this trend is also observed in other countries of the region.

Risks and new opportunities

Rising wages and inflation are making it harder for central banks to cut interest rates, while “hard” inflation and a stronger dollar have already become challenges to the current rate-cutting cycle in Eastern Europe.

Keeping rates high puts pressure on economies and makes local debt more expensive for governments. According to Günther Deuber, head of research at Raiffeisen Bank International, a decline in inflation is not guaranteed, and inflation rates are likely to remain stable in Hungary and Romania, while they may rise in the Czech Republic.

“This means that we do not expect a significant reduction in rates in our region,” he said.

At the same time, Deuber is skeptical that Ukrainian workers who have already settled in Europe will return home en masse, particularly due to the uncertainty regarding a possible peace treaty. At the same time, the Director of the European Bank for Reconstruction and Development, Charlotte Rue, emphasized that companies can use the outflow of employees as an opportunity for investment in labor automation measures. She noted that the demographic situation in the region will worsen significantly after the return of Ukrainians to their country. According to her, demography is one of the main risks for the economic future of these countries.

Christian Petter, head of Austria and Central and Eastern Europe at J. Safra Sarasin, noted that the lack of Ukrainian workers will create new challenges for cities such as Warsaw, Prague and Bratislava, which have become dependent on migrant labor.

Bankers and investors noted that the post-war reconstruction of Ukraine could become a significant incentive for neighboring countries, especially Poland.

However, Donald Trump’s return to the White House, as well as a strengthening dollar, tariff threats and uncertainty over a rate cut in the US, create a difficult situation for policymakers in the region.

State Secretary of the Ministry of Finance of Serbia, Ana Tripović, noted at the summit that the increase in debt during the period of COVID and the energy crisis caused by the Russian invasion of Ukraine are now complicated by a strong dollar, which makes international debts more expensive for countries like hers.

“Working in the market is becoming more and more difficult. Today we face all the threats and challenges that once arose alone.” – she added.

Ukrainian refugees were not only able to find safety in Europe, but also became an important resource for the economies of many countries. Their contribution to labor markets and economic growth is undeniable. However, the return of Ukrainians home after the end of the war could deal a serious blow to the economies of Eastern Europe. This requires the governments of these countries to develop new strategies to overcome the challenges associated with labor shortages and demographic problems. At the same time, for Ukraine, the return of citizens will be an opportunity to restore its economy, enriching it with experience and skills acquired abroad.