“Ukraine’s economy remains a quarter smaller than in 2021, but for the first time since the beginning of the full-scale invasion in 2022, it shows advantages over the economy of the Russian Federation in certain key indicators.”, — write: epravda.com.ua
Ukraine’s economy remains a quarter smaller than in 2021, but for the first time since the beginning of the full-scale invasion in 2022, it shows advantages over the economy of the Russian Federation in certain key indicators. The Economist writes about it. 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 the last 30 months. By comparison, in Russia, rates could soon reach 23% to stem the ruble’s slide, banks are in a fragile state, and GDP growth is forecast at only 0.5-1.5% in 2025.Advertisement: However, Ukraine faces serious challenges : the escalation of the war, the reduction of domestic resources and the influence of Donald Trump. In July 2023, Russia refused to extend the grain agreement. Ukraine responded by opening its own maritime corridor, securing it through a maritime deterrence campaign with drones and missiles. This made it possible to restore not only the supply of grain, but also metals and minerals, which are the second most important export of the country. These measures, along with Western aid, prevented Russia from depriving Ukraine of the resources and morale needed to continue the struggle. However, now the phase is beginning, during which the economy faces the biggest challenges: an acute shortage of energy, human resources and finances.Advertisement: In December, Ukraine increased the throughput capacity of electricity imports from the EU by almost a quarter — to 2.1 GW. Many food producers convert production residues into biogas for their own needs. Industries combine these sources with imports to avoid catastrophic shutdowns. Continuous repairs to the power system will help keep Ukraine’s average electricity deficit at 6% of total demand in 2025 and 3% in 2026, according to Andrii Pyshnyi, head of the National Bank of Ukraine. Another pressing issue is the labor shortage. From 2022, mobilization, migration and war reduced the labor force by more than a fifth, to 13 million people. Demand for labor remains high, with vacancies reaching 65,000 per week, compared with 7,000 in the first weeks of the war. But there are only 1.3 applications per vacancy, compared to two in 2021. The Ministries of Economy and Defense are fighting for the balance of mobilization: how to properly allocate resources for the future of the country. So far, the civilian leadership refrains from the maximalist demands of the military, which harms the front. Even industries considered critical can now protect only half of their workers from mobilization. Another problem is lack of money. It is difficult for small farms and businesses to borrow enough money to finance their operations. Long-term capital investments are almost impossible. Rising costs of doing business reduced profits. Companies serving domestic customers pass on part of the costs to consumers, increasing inflation. Exporters competing on global markets cannot do this. The state also spends much more than it receives. In 2025, the budget deficit is forecast at the level of about 20% of GDP. Almost all of this deficit — $38 billion — is planned to be covered by external financing. In June, the G7 countries agreed on a $50 billion aid package, which Ukraine must repay with interest earned from frozen Russian assets of €260 billion ($273 billion) in Western countries. However, US support for this plan is not guaranteed. Ukraine will probably be able to survive 2025 without funding from the US. Together with the €18 billion agreed by the EU, the contributions of other G7 countries will be able to fill the gap, according to Dimitar Bogov from the European Bank for Reconstruction and Development. Ukraine also has significant foreign exchange reserves, which should grow to $43 billion by the end of 2024, which will cover the six months of import. However, if America refuses to finance, in 2026 Ukraine may face a financial collapse.