Ukraine’s economy shrank by more than 30% in 2022 after Russia’s brutal invasion destroyed infrastructure, hurt businesses and disrupted daily life, according to the country’s economy ministry.
“During 2022, Ukraine’s economy suffered the largest losses and damage in the history of its independence,” Economy Minister Yulia Svyrydenko said Thursday.
The projected 30.4% contraction in gross domestic product is much better than experts feared shortly after Russia’s invasion in February 2022. At the time, many projected that Ukraine’s economic output would plunge by between 40% and 50%.
“The successes of the Ukrainian defense forces on the battlefield, the coordinated work of the government and business, the indomitable spirit of the population, the speed of restoration of destroyed/damaged critical infrastructure by domestic services, as well as systematic financial support from international partners allowed us to hold the economic front and continue to move towards victory,” Svyrydenko said.
The ministry warned, however, that missile attacks from Russia “continued to put pressure on business sentiment and activity” in December.
In 2021, Ukraine’s economic output was about $200 billion, up about 3.4% on the previous year, according to the World Bank.
Damage and resilience
Ukraine’s economic prospects collapsed after Russian President Vladimir Putin launched a full-scale assault ten months ago, causing thousands of civilian deaths, displacing millions of Ukrainians and resulting in hundreds of billions of dollars in damages.
Energy infrastructure in the country has been hit particularly hard recently, as Putin’s troops seek to plunge Ukrainian cities into the dark and cold over the winter.
The cost of reconstruction and recovery in Ukraine was put at roughly $349 billion in a September assessment from the World Bank, the European Commission and Ukraine’s government. Ongoing fighting will have raised the price tag since then.
Still, the country’s economy has proved more resilient than initially predicted.
Russia’s occupation is concentrated in the east and south of the country. The rest “has figured out how to carry on,” said Timothy Ash, senior emerging market strategist at BlueBay Asset Management.
“It’s transitioned from a peacetime economy to a wartime economy,” he said.
Rebuilding rail, buildings and electricity systems is propping up economic output. GDP could edge up in 2023 when compared to the dismal 2022 base, Ash noted.
Importantly, the country’s financial infrastructure has remained intact, allowing people and businesses to continue to make payments. The government can still collect taxes and raise money to support its troops.
“The banking system [has been] strong and operated with no functional limitations during the whole war,” Andriy Pyshnyy, governor of the National Bank of Ukraine, recently told the International Monetary Fund. “Almost all banks — not only systematically important banks — [have] continued operations. This is a big advantage for Ukraine.”
Tens of billions of dollars in foreign aid from the West has also played a crucial role, allowing the government to continue to provide services.
A breakthrough deal with Russia to restart grain shipments via the Black Sea has helped Ukraine’s large agricultural sector in recent months. But exports of products such as wheat are still well below where they were before the war began.
— Olga Voitovych and Sebastian Shukla contributed reporting.