Economic Forecast Summary Ukraine – June 2023


After a sharp contraction in the first year of the war, economic activity is stabilising. The business sector is adapting to the war conditions, allowing for an expansion of production. Exports are benefitting from closer trade ties with the European Union and the “Black Sea Grain Initiative” that permits agricultural exports from otherwise blocked ports. Inflation is projected to moderate helped by lower food and energy prices. The economy remains highly dependent on international financial assistance.

Macroeconomic policies should continue to secure economic stability by avoiding excessive public deficits and inflation. Structural policies should focus on supporting resilience and bolstering the reconstruction and recovery capacity of the economy by strengthening public governance and facilitating labour reallocation.

The war led to a strong economic contraction

The strong post-pandemic recovery was interrupted by Russia’s war of aggression against Ukraine. Large labour and financial resources are assigned to the war effort and important industrial centres and swaths of agricultural land have been occupied. In addition, human costs are mounting with the United Nations (UN) estimation of 24 000 civilian casualties (of which more than a third were fatalities) as of May 2023. Moreover, one third of the population has been internally or externally displaced. According to the UN, more than 8 million people, mostly women and children, have left the country. Physical war damages to building and infrastructure are estimated by the Kyiv School of Economics Institute to have reached nearly USD 150 billion. Production capacity has been further damaged by additional supply-chain disruptions from the ceasing of civilian flights, blocked ports, and widespread electricity shortages. In consequence, the economy shrank by over 29% in 2022.


the war led to a strong economic contraction ukraine

Ukraine: Demand, output and prices

ukraine demand output and prices

The worst-affected sectors include manufacturing, reflecting the high concentration of heavy industries in war zones, and agriculture. Less affected sectors include the IT sector, which is mostly located in non-war zones and could, if necessary, easily relocate production. Construction sector output is underpinned by the completion of unfinished projects and reconstruction work. Moreover, activity in the defence industry continues to expand, while restaurants and other personal services are resuming activity outside war zones. These trends are reflected in stronger business confidence and underpinned by the restoration of electricity supply and a state programme to help businesses relocate to safe areas. In addition, business confidence in the retail sector is benefitting from the restoration of consumer supplies. Exports have benefitted from greater trade openness toward the European Union and the resumption of exports of agricultural produce from ports. The improved economic situation has induced an increasing number of refugees to return. Nonetheless, private consumption remains subdued under the impact of falling employment and high inflation. The latter has been partially contained by price controls on some basic food and energy products, but has nonetheless increased from around 10% prior to the war to about 26% between September and December 2022. Inflation started to slow in 2023, falling to 17.9% in April 2023.

Macroeconomic policies are focussed on stabilisation

When the war began, the National Bank of Ukraine fixed the exchange rate against the dollar to maintain macroeconomic stability. In June 2022, the policy rate was increased from 10.0% to 25.0% to support the hryvnia. A month after, the currency was devalued by 25%. The central bank expects to maintain this policy stance until lower inflation allows monetary policy easing. This is not expected before 2024. Fiscal policy is centred on financing the war, while protecting the population by maintaining all social payments and providing financial assistance to internally displaced people. Businesses are being supported by tax holidays, tax benefits, a relocation programme, loan guarantees, and interest-free lending to war-affected enterprises. The fiscal deficit soared to 16.9% of GDP in 2022 and was financed mostly through international support.

The war economy is on course to strengthen notwithstanding large uncertainties

Activity is projected to improve as the economy adjusts to the demands of the war, although this projection is surrounded by extraordinarily large uncertainty. Overall business investment is not expected to pick up significantly before the war is concluded. Nonetheless, some sectors, such as IT and agriculture, will continue to benefit from higher demand. Inflation will moderate under the impact of lower food and energy prices. The largest upside risk is a durable conclusion of the war, which would restore consumer and producer confidence and release large reconstruction spending. On the downside, a reduction in international financial support could lead to monetary financing of the war effort and higher inflation.

Structural policies should enhance economic resilience and prepare for reconstruction and recovery

The government has already implemented elements of its Recovery and Reconstruction Strategy, notably anti-corruption measures. An effective reconstruction of the economy requires a strengthened public investment management framework, including prioritisation of cost-efficient infrastructure investment projects. Further efforts to lift the economy to a higher post-war growth path should include improvements in product market competition to attract private investment. Measures to enhance labour mobility would support the transition towards more knowledge-based activities in new locations.


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