Russia’s invasion of Ukraine has had an enormous impact on the economic and financial landscape of Ukraine. Aside from the calamitous humanitarian crisis and geopolitical instability that the war has unleashed, economic activity has been significantly curbed. While the situation is rapidly evolving, and short and long term impact predictions are subject to revision, the crisis has undoubtedly changed the market environment in Ukraine.
The World Bank predicts that the Ukrainian economy will shrink by 35 percent in 2022 amid market disruptions caused by the war. Ukraine’s First Deputy Prime Minister and Minister of Economy, Yulia Svyrydenko, further estimates that the real GDP of Ukraine could fall by 35 to 45 percent through the rest of 2022. Annual inflation in Ukraine accelerated to 22.2% in July 2022, according to the State Statistics Service of Ukraine. Earlier in July, the National Bank of Ukraine said that inflation in Ukraine will reach over 30% in 2022.
While the economic situation is likely to stabilize and recover as the crisis abates, the erosion of production capacity remains a barrier to future growth. In the short term, there has been a sharp reduction in the labor supply as more than a third of the population has been displaced by the war. The destruction of agricultural land and equipment could also inhibit the recovery of Ukraine’s historically productive and rich farmlands. As such, the World Bank estimates that the recovery and reconstruction costs from the war in Ukraine will total a minimum of $349 billion – 1.5 times the size of the pre-war economy.
The deficit of Ukraine’s foreign trade in goods in January-June 2022 doubled compared to the same period in 2021 - to $2.468 billion from $1.227 billion, the State Statistics Service reported. According to its data, exports of goods from Ukraine during the reporting period decreased by 24% compared to the first half of 2021 - to $22.732 billion, imports - by 19.1%, to $25.2 billion.
The International Monetary Fund (IMF) and World Bank have a robust historical presence in the country and have signaled their support of the coming reconstruction as have many donor countries. Still, Ukraine will need continued financial support in both the short-term as the war continues and in the long-term for recovery.
Political & Economic Environment: State Department’s website for background on the country’s political environment