Ukraine is winning the economic war against Russia - The Economist
Kyiv • UNN
Ukraine's economy is performing better than Russia's for the first time since the invasion. The NBU forecasts GDP growth of 4% in 2024, while Russia expects only 0.5-1.5% in 2025.
Although the Ukrainian economy has shrunk by a quarter compared to 2021, for the first time since the start of the full-scale invasion in 2022, it is showing advantages over Russia in a number of key indicators, UNN reports, citing 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% is the lowest in 30 months. In comparison, in Russia, interest rates are expected to rise to 23% due to the weakening of the ruble, while GDP growth is forecast at only 0.5-1.5% in 2025.
The NBU raised the discount rate to 13.5%: for what purposeDec 12 2024, 12:11 PM • 13149 views
However, Ukraine is facing a number of challenges: an escalating war, depleting resources, and political risks associated with Donald Trump. In July 2023, after Russia withdrew from the grain deal, Ukraine opened its own sea corridor. Using drones and missiles, it ensured the safety of transportation, resuming the supply of grain, metals and minerals, the country's second most important export commodity.
These measures, together with international assistance, have 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: shortages of energy, labor, and finance.
Energy
Russian attacks have significantly reduced Ukraine's energy potential: less than half of its pre-war generating capacity of 36 GW remains available. In December, Ukraine increased electricity imports from the EU by a quarter, to 2.1 GW. Businesses are actively using alternative energy sources: biogas, diesel generators, solar and wind power. According to forecasts, the average electricity deficit will decrease to 6% by 2025 and to 3% by 2026.
Labor force
Since the beginning of the war, the number of employees has decreased by more than 20%, to 13 million people. Demand for labor remains high: the weekly number of vacancies reaches 65,000, but only 1.3 applications per position are submitted, compared to two in 2021. The military and economic departments are competing for a balance in mobilization, which affects critical industries where only half of the workforce can be protected from mobilization.
Finance
Ukrainian small businesses face difficulties in financing their operations, and long-term investments are virtually unavailable. Rising business costs have squeezed profits, and exporters are unable to pass these costs on to customers due to competition on global markets. The government's budget deficit in 2025 is projected at 20% of GDP, of which $38 billion is expected to be covered by external financing.
In June 2023, the G7 countries agreed on a $50 billion aid package, which should be partially funded by frozen Russian assets. However, US support for this plan remains in question. While Ukraine will be able to hold out in 2025 thanks to funding from the EU and other G7 countries, the situation could deteriorate in 2026 if the US withdraws from the program.
Recall
President of Ukraine Volodymyr Zelenskyy saidthat $20 billion in funds from frozen Russian assets are already in the World Bank's account.
