A 30 percent annual drop in GDP is seldom good news, but it marks an important victory for Ukraine.
No sooner had Russia launched its full-scale invasion of Ukraine in February than all international financial institutions, analysts and think tanks had all but buried the Ukrainian economy.
Forecasts of a fall in GDP of up to 50 percent were not uncommon. In April, the normally conservative World Bank forecast that Ukraine’s economy would contract by an estimated 45.1 percent, although it hedged its bets somewhat by suggesting the extent of the contraction would depend on “the length and intensity” of the war.
The war continues and becomes more and more grueling. And yet Ukraine’s economy ministry reported on Jan. 5 that the country’s economy actually shrank by just 30.4 percent in 2022, a remarkable feat, albeit still the largest contraction in GDP since independence from the Soviet Union in year 1991.
In 2021, Ukraine’s GDP had grown by 3.4 percent to its highest level in history.
The Economy Ministry also announced this week that Ukraine will export $44.1 billion worth of goods in 2022, 63 percent of which will go to the European Union. Poland was the country’s largest single trading partner.
According to Ukraine’s Economy Minister Yulia Sviridenko, the less-than-expected drop in GDP is a tribute to the country’s resilience and continued support from its allies.
“The achievements of the Ukrainian Defense Forces on the front lines, the coordinated work of government and business, the unshakable spirit of the people and the speed of reconstruction of damaged critical infrastructure units, as well as systemic financial support from international donors, have allowed us to keep up with Economic Front and continue our movement towards victory,” said Sviridenko.
IT, banking, hold on
Despite the departure of millions of refugees, domestic consumption – often of goods necessary for the war effort or survival – has been strong. Shops and supermarkets have remained well stocked; In areas unaffected by fighting, bottlenecks were few. Bars and restaurants that were closed during the first weeks of the war quickly reopened.
Importantly, exports of IT products and services – a major foreign exchange earner – have remained stable and in many cases increased compared to 2021.
The country at war: The Voice of Ukrainian Start-ups, a report Emerging Europe published in August based on a survey of over 150 Ukrainian start-ups, showed the resilience of Ukraine’s IT sector.
Almost all of the startups we spoke to indicated that they expect to expand their business in the short term. Only four percent believed that their activities might have to be scaled back.
Meanwhile, deceiving Russia to keep alive a deal that would allow grain exports by sea has helped Ukrainian agriculture stay afloat and reduced the risk of a global food crisis.
Ukrainian banks have remained solvent. “There is funding and payment support for the economy, which remains fully operational. We have tax revenues, we pay social security contributions, we have international support and we can raise billions of hryvnia to support the armed forces,” Governor of the National Bank of Ukraine Andriy Pyshnyy said in an interview with the International Monetary Fund last month.
A nimble economy adapts
In recent weeks, Russia has attacked key Ukrainian infrastructure, leaving cities across the country without electricity and heating for long periods. The economy has adapted quickly, nimbly. Generators have become a necessity as IT firms and other businesses use them to ensure operations can continue.
For next year, Ukraine’s prospects remain uncertain as Russia continues its war. However, most analysts expect a slight recovery. The rating agency Fitch expects modest growth of four percent for 2023, far from the pre-war level.
The recovery will be “flat and gradual,” she warns, with external help essential to prevent further contractions.
Ukraine currently receives around $3 billion a month in grants and loans from key allies (mainly the United States and the European Union). A similar amount is expected to be needed in 2023.
Unlike many news and information platforms, Emerging Europe is, and always will be, free to read. There is no paywall here. We are independent, neither affiliated with nor do we represent any political party or business organisation. We want the very best for emerging Europe, nothing more and nothing less. Your support will help us continue to spread the word about this amazing region.
Here you can make a contribution. Thank you very much.
Comments are closed.