Ukraine’s economy recovers from the effects of the war
The Novus grocery chain in Kyiv immediately ran out of stock after Russia attacked Ukraine a year ago as both its domestic and international supply systems broke down. Fresh food became hard to find, and panic shopping increased.
Oleksiy Panasenko, the popular outlet’s deputy director general for operations, remembers how the company struggled before Novus, like many other major retail chains, was able to adapt.
And the retail industry as well as the overall economy recovered when Ukrainian soldiers forced the Russian army to flee Kyiv in the spring.
At the end of May, 47% of the more than 1,000 foreign and Ukrainian enterprises that make up the European Business Association in Ukraine had fully resumed operations, while another 50% were operating with some restrictions.
But in October, missile assaults started, striking Ukraine hard. Russia attacked the nation’s electricity systems and sub-stations, causing outages during the bitter winter and severely affecting heavy industry. The economy contracted by a third last year, the most since 1991, when Ukraine gained independence from the Soviet Union. The annual economic production had surpassed $200B prior to Russia’s invasion.
The difficulties are great as the battle approaches its second year with no signs of letting down. Seven experts were surveyed by Reuters, and their predictions for 2023 ranged from a modest increase to a sizable 5% decrease in gross domestic product (GDP).
What are the challenges?
A significant challenge will be getting reliable power access. The economists, government officials, and CEOs from two private enterprises all agree that businesses that can’t run on generators alone will have a hard time this year.. The largest steel producer in Ukraine, ArcelorMittal Kryvyi Rih, reported that due to power outages, production is currently only roughly 25% of pre-war levels.
The economy ministry estimates 3.2% growth, compared to the central bank of Ukraine’s prediction of a 0.3% increase. Ukrainian officials started being more optimistic about the economy last summer after a grain export agreement with the UN.
The pact protected Ukraine’s agriculture, which before the war contributed around 12% to GDP and 40% of all exports. Ukraine’s grain exports for the 2022–2023 season are down 29.3% from last year at 29.7M tons.
The economy has also benefited from a significant increase in military spending, particularly army salaries, according to Vitaly Vavrishchuk, head of research at ICU Investment Company. According to the National Security Council, Ukraine invested $40.6B ($1.5T) in its defense sector in 2022, or over one-third of its total economic output.
That was roughly five times more than what the country had budgeted for defense before the conflict. Foreign aid worth tens of billions of dollars has flowed in, helping to outfit Ukrainian soldiers and plug the budget deficit.
