How Ukraine’s economy will develop in a time of war.

Today, it is possible to predict the future of the Ukrainian economy only with significant “if,” “possibly,” and other political and security assumptions. It is easy to turn any optimism into speculation in such a situation. The antidote to this is our experience of economic resilience and self-healing in the face of war.

Ukraine entered 2023 with disappointing forecasts. After GDP fell by 29.1% by April 2023, the World Bank downgraded its expected growth forecast to only 0.5%. However, Ukrainian businesses were resuming operations and creating new jobs, energy companies were repairing damaged facilities, and utilities cleared rubble from cities after shelling. Thus, by the end of 2023, we had growth in all key sectors: agriculture, industry, and especially in mechanical engineering (plus 12.9%), and positive dynamics were observed even in construction, which had come to a standstill at the beginning of the full-scale invasion.

The assistance of Ukraine’s foreign partners played a critical role in this stability. From February 24, 2022, to November 1, 2023, the budget received more than $67 billion. This allowed us to cover priority needs, social spending, and maintain financial stability (one of the indicators is inflation, which has fallen to 3.8%).

One of the key challenges in 2023 was the high unemployment rate of 18.9%. In addition, exports, limited by logistical problems, decreased by 11.3% in January-September 2023 compared to the same period in the previous year. Nevertheless, analysts believe that this figure will increase in 2024. The fact that Ukraine has launched a navigation corridor and developed a ship insurance mechanism on its own efforts adds to the positive outlook. In addition, the situation will be improved by demining liberated territories, modernizing and rebuilding production facilities, and gradually stabilizing the agricultural sector. Thus, according to the Ministry of Economy, exports of goods and services will grow by 9% in 2024. At the same time, imports are expected to increase by 5.9%.

At the level of expectations

The consensus forecast for GDP growth is 4.2% in 2024, but the Ministry of Economy is more optimistic at 4.6% (and in 2023, we were more accurate in our forecasts than the IMF and the World Bank). GDP growth will affect the need for labor. The unemployment rate will fall to 12.2%. At the same time, the labor force is expected to remain at the level of 2023, i.e., approximately 15.1 million people. In addition, about 1.5 million people will return to Ukraine in 2024 and 2 million in 2025. These processes will be driven by economic improvement.

The average salary will continue to grow, reaching UAH 21,809 in 2023. According to experts, inflation at the end of 2024 will not exceed 9.7%, while the Ministry of Economy forecasts 9.7%.

The projected growth in private consumption of about 8% should boost manufacturing and industrial enterprises. One of the priorities for the coming years is to stimulate the production of domestic goods. The defense industry will play a unique role in growth in the current environment, thanks to joint ventures between Ukrainian and foreign companies.

UAH 40 billion is allocated for business development in the 2024 budget. The main focus is on companies that produce Ukrainian products with high added value. Government and defense procurement, as well as central and local needs, will be maximally targeted to support them. Every hryvnia spent on a Ukrainian product means up to 40 kopecks that will return to the economy and be spent on salaries, new jobs, education, healthcare, and, of course, the needs of our defenders.

In 2024, we expect that net FDI inflows will likely remain at the level of 2023. But we will see more investment in manufacturing through risk insurance, both within the ECA (Export Credit Agency) and through international institutions such as MIGA (the World Bank Group’s Investment Guarantee Agency), which has already issued its first guarantee.

Many risks can affect economic development, and we already have experience with many of them. The essential task for 2024 is to interact with partners, maintain and build mutual trust, implement reforms, ensure accountability, etc. A vivid example of the complexity of this work is the Ukraine Facility, which is due to start in 2024 and is expected to receive funding of EUR 18 billion.

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