Ukraine will win the economic war against Russia – The Economist

The Ukrainian economy, although shrunk by a quarter compared to 2021, for the first time since the beginning of the full-scale invasion in 2022 shows advantages over the Russian one in a number of key indicators, reports UNN with reference to The Economist.

The National Bank of Ukraine forecasts GDP growth of 4% in 2024 and 4.3% in 2025. The currency remains stable and the interest rate at 13.5% has reached a 30-month low. In comparison, Russia is expected to increase rates by up to 23% due to a weaker ruble, while GDP growth is forecast at only 0.5-1.5% in 2025.

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However, Ukraine faces a number of challenges: the escalation of the war, the depletion of resources and the political risks associated with Donald Trump. In July 2023, after Russia withdrew from the grain agreement, Ukraine opened its own maritime corridor. With the help of drones and missiles, it ensured the safety of transportation, restoring the supply of grain, metals and minerals – the country’s second most important export.

These measures, along with international aid, prevented Russia from depriving Ukraine of resources and motivation to continue the struggle. At the same time, Ukraine is entering a period when the economy is facing serious problems: shortage of energy resources, labor force and finances.

Energy

Russian attacks significantly reduced the energy potential of Ukraine: less than half of the pre-war generating capacity of 36 GW remains available. In December, Ukraine increased electricity imports from the EU by a quarter, up to 2.1 GW. The business actively uses alternative energy sources: biogas, diesel generators, solar and wind energy. According to forecasts, the average electricity deficit will decrease to 6% by 2025, and to 3% by 2026.

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Labor force

Since the beginning of the war, the number of workers has decreased by more than 20%, to 13 million people. Demand for labor remains strong, with weekly job openings reaching 65,000, but only 1.3 applications per position, down from two in 2021. The military and economic departments are competing for balance in mobilization, which affects critical industries where only half of the workers can be protected from mobilization.

Finances

Ukrainian small businesses face difficulties in financing their activities, and long-term investments are practically unavailable. Rising business costs have reduced profits, and exporters are unable to pass these costs on to customers due to competition in global markets. The government budget deficit in 2025 is forecast at the level of 20% of GDP, of which $38 billion is planned to be covered by external financing.

In June 2023, the G7 countries agreed on a $50 billion aid package, which should be partially financed by frozen Russian assets. However, US support for this plan remains in question. Although Ukraine will be able to survive in 2025 thanks to funding from the EU and other G7 countries, the situation could worsen in 2026 if the US withdraws from the program.

We will remind

The President of Ukraine, Volodymyr Zelenskyy, said that 20 billion dollars of funds from frozen Russian assets are already in the World Bank account.