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More than two years into the war, how is Ukraine’s economy faring?

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Most economic indicators are downbeat:

At end-2023, the economy was still 25% smaller than before the war with Russia began in early 2022, despite a rebound last year. Russia’s destruction of around half of Ukraine’s power generation capacity, military conflict in the east of the country, troop mobilization and mass migration—the population is down around six million from pre-war levels—are all conspiring to cap economic activity. Exports of goods and services declined for the fourth straight year in 2023, the fiscal deficit is running well in the double digits, and the public debt-to-GDP ratio has doubled due to the war. 

Some rays of hope:

More positively, Kyiv has succeeded in rerouting its goods exports via a new coastal shipping route, following the collapse last year of the UN-brokered Black Sea Grain Initiative; exports grew by double-digits in annual terms in April and May this year. The approval in April of a major American aid package should allow the army to avoid losing too much territory to Russia. And inflation is down to the low single digits, supporting purchasing power.  

All eyes on debt restructuring and U.S. elections:

An agreement to freeze Ukraine’s debt repayments is set to expire next month. The government is attempting to restructuring over USD 20 billion of debt with creditors to avoid entering formal default. The deal could be crucial: The larger the losses that Ukraine can persuade bondholders to accept, the more money it will free up to juice the economy and defend itself militarily. But if the country defaults, this would limit the government’s access to capital markets and damage its ability to wage war in the longer term. Then there’s the U.S. elections: A Trump victory could speed up an end to the war, if the U.S. curtails Ukrainian military aid and pushes Ukraine to the negotiating table as a result. 

Our economic forecasts:

The Consensus among our analysts is for the Ukrainian economy to remain smaller than its pre-war level through 2028: The population is not expected to return to pre-war levels, and war will likely either grind on or end with Ukraine losing territory, both of which would reduce productive capacity. At the same time, the fiscal situation will remain extremely challenging given hefty reconstruction and defense bills; analysts see the budget deficit narrowing from 19% of GDP this year to a still-excessive 6% in 2028, necessitating prolonged international support.  

Insight from our analyst network

On the implications of a Trump victory, EIU analysts said: 

“Under Mr Trump, we would expect an early and fairly concerted effort to open negotiations between Ukraine and Russia. […] if a compromise were to emerge, it would probably favour Russia, most likely formalising the existing loss of about a fifth of Ukraine’s territory. There is a moderate risk that US aid could be completely withdrawn or massively delayed under Mr Trump. Under this scenario Russia could make major territorial gains.” 

IMF analysts commented on recent developments: 

Skillful policymaking supported by external financing has helped maintain macroeconomic and financial stability despite challenging circumstances, and the authorities continue to advance important structural reforms. Better-than-expected growth outturns in 2023 and in 2024Q1 demonstrate the resilience of the economy. Approval by the United States of the US$61 billion financial and military support package, and by the European Council of the €50 billion Ukraine Facility and its underlying Ukraine Plan are positive developments following a challenging period of liquidity strains in early 2024.” 

Our latest analysis

Israel’s economy remained smaller than pre-war levels in May. 

The U.S. manufacturing sector improved in June. 




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