Ukraine’s economy remains a quarter smaller than in 2021, but for the first time since the full-scale invasion began in 2022, it is showing advantages over the Russian economy in certain key indicators.
As reported by The Economist, the National Bank of Ukraine forecasts GDP growth of 4% in 2024 and 4.3% in 2025. The currency is stable and the interest rate at 13.5% remains the lowest in 30 months.
By comparison, in Russia, rates could soon reach 23% to stem the fall of the ruble, banks are in a fragile state, and GDP growth is forecast at only 0.5-1.5% in 2025.
Yet Ukraine faces serious challenges: escalating war, dwindling domestic resources, and the influence of Donald Trump, the outlet writes.
In July 2023, Russia refused to extend the grain agreement. Ukraine responded by opening its own sea corridor, securing it through a maritime deterrence campaign with drones and missiles. This allowed the resumption of not only grain shipments, but also metals and minerals, which are the country’s second most important exports.
These measures, together with Western aid, have prevented Russia from depriving Ukraine of the resources and morale needed to continue the fight. However, now begins the phase during which the economy faces its greatest challenges: acute shortages of energy, human resources and finance.
Pressing challenges
In December, Ukraine increased the capacity of electricity imports from the EU by almost a quarter to 2.1 GW. In addition, many food manufacturers turn production residues into biogas for their own use. Industries combine these sources with imports to avoid catastrophic outages.
Continuous repairs of the energy system will help keep Ukraine’s average electricity deficit at 6% of total demand in 2025 and 3% in 2026, according to Andriy Pyshnyy, chairman of the National Bank of Ukraine.
The other most difficult problem is the labor shortage. Since 2022, mobilization, migration and war have reduced the labor force by more than a fifth, to 13 million people. Demand for labor remains high, with vacancies reaching 65,000 a week, up from 7,000 in the first weeks of the war. But there are only 1.3 applications per vacancy, compared with two in 2021.
The ministries of economy and defense are struggling over the balance of mobilization: how to properly allocate resources for the country’s future. So far, the civilian leadership has refrained from the maximalist demands of the military, which hurts the front, the outlet notes.
Even industries that are considered critical can now protect only half of their workers from mobilization.
Another problem is the lack of money. It is difficult for small farms and enterprises to borrow enough money to finance their activities. Long-term capital investments are almost impossible. Rising costs of doing business have reduced profits. Companies serving domestic customers are shifting some costs to consumers, increasing inflation. Exporters competing in global markets cannot do this.
The state also spends much more than it receives. In 2025, the budget deficit is projected at about 20% of GDP. Almost all of this deficit – $38bn – is scheduled to be covered by external financing.
In June, the G7 countries agreed on a $50 billion aid package, to be repaid by Ukraine from interest earned on €260 billion ($273 billion) of frozen Russian assets in Western countries. However, US support for the plan is not guaranteed.
Ukraine can probably survive 2025 without US funding. Together with the €18 billion agreed by the EU, contributions from other G7 countries could fill the gap, says Dimitar Bogov of the European Bank for Reconstruction and Development.
Ukraine also has significant foreign exchange reserves, which should rise to $43 billion by the end of 2024, which would cover five months of imports. However, if the US refuses to finance, Ukraine could face financial collapse in 2026.
Related:
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- IMF: More profitable for partners to finance Ukraine now, instead of financing consequences of defeat
- Ukrainian strikes reduce Russian oil refining by nearly 17%
- UK intel: Russia steals Ukraine’s mineral resources in occupied areas
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