Ukraine’s economy healthier than russia’s. But it is entering new phase that carries greatest threats — The Economist

After the actual completion of the third year of full-scale military aggression, Ukraine’s economy has turned out to be significantly healthier than russia’s in some key parameters. However, a new phase awaits the country in the near future, which carries the greatest threats to the economy.

This is stated in the material of the British newspaper The Economist.

The publication writes that Ukraine’s economic history after February 24, 2022, can be conditionally divided into three stages.

The first stage

In the first stage, after russian troops crossed the border and began the invasion, the country tried to put out the fire. Martial law was introduced and 14 million people were forced to leave their homes.

At this stage, russia blocked the ports of the Black Sea, depriving Ukraine of the opportunity to export goods, and the actions of its central bank were subordinated to military goals. In the first half of 2022, it financed half of the state deficit, imposed tight capital controls, and flooded banks with liquidity. This led to rising inflation and the GDP decline by a third.

The second phase

The second phase of the warring country’s economy began in mid-2022, when the Ukrainian army was able to repel the russian army’s offensive in the south.

As confidence grew, GDP began to stabilize, and the Black Sea Grain Initiative allowed the country to resume agricultural exports.

In early 2023, Ukraine signed an agreement with the International Monetary Fund (IMF), the central bank stopped monetizing the budget deficit, and foreign exchange reserves began to rebuild as foreign financial assistance flowed in.

The return of macroeconomic stability allowed the government and companies to prepare for war. One priority was to protect production assets from russian missile attacks.

Industrial parks were built in safer western regions, and businesses began to invest abroad to protect their income. Inflows of funds from citizens from abroad increased: in 2023, one in ten new firms in Poland was opened by a Ukrainian.

The final element was to ensure the inflow of hard currency. In July 2023, russia refused to continue the Black Sea Grain Initiative, in response to which Ukraine opened its own sea corridor, ensuring its security with the help of an excellent naval deterrence campaign.

These measures and assistance from Western countries did not allow russia to deprive Ukraine of the resources and morale the country needed to continue the fight. Kyiv was also able to rebuild its economy in accordance with the realities of the war.

It is still a quarter smaller than in 2021, but for the first time since February 2022 it is healthier than russia in some key parameters.

"Ukraine’s central bank forecasts GDP to grow by 4% in 2024 and 4.3% in 2025. The currency is stable and interest rates, at 13.5%, remain near their lowest in 30 months. Contrast that with Russia, where rates should soon hit 23% to arrest the rouble’s fall, banks look fragile and GDP is set to grow by just 0.5-1.5% in 2025," the publication says.

The third stage is the most threatening

According to The Economist, the Ukrainian economy is now entering the third stage, when it faces the greatest threats: a shortage of electricity, labor and money.

The most acute problem is a shortage of people. Mobilization and migration have caused a shortage of labor, which has decreased by about 20%. There are 1.3 applications for one vacancy, compared to 2 in 2021.

This is causing disputes between the country's civilian and military leadership due to the scale of mobilization, which is taking specialists to the front.

Booking from mobilization, introduced by the authorities earlier, also does not save the situation, because only half of the employees can apply for "booking".

Replacing men with women is also difficult, since the number of Ukrainian women who have gone abroad is almost the same as the number of men who went to the front.

In second place, according to the publication, is the lack of money. Small businesses are facing difficulties in obtaining loans, financing long-term expenses is practically impossible, and the increase in operating costs has significantly affected their profitability.

The third problem is the lack of guarantees that after the arrival of US President-elect Donald Trump in the White House, Washington will continue to participate in providing assistance to Ukraine.

If Washington refuses assistance, in 2025, assistance from other G7 members will cover the shortfall, but in 2026 Ukraine may find itself in a difficult situation, the publication writes.

Kyiv is also limited in increasing revenues: in the summer the authorities had to abandon the tax increase, as this proposal caused dissatisfaction among Ukrainians.

The Economist notes that in 2026 the Ukrainian economy may face a crisis. Despite fears, business is now cautiously optimistic.

As the Ukrainian News agency earlier reported, on December 12 the board of the National Bank of Ukraine decided to raise the key policy rate to 13.5%.

Recall that according to a report by the Ministry of Economy of Ukraine dated December 12, the country's economy grew by 4% in the eleven months of 2024.