Ukraine: Economic and Political Overview
In this page: Economic Outline | Political Outline
On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political context in both countries and will have substantial political and economic ramifications. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.
Three years into the conflict, Russia's invasion of Ukraine stands as a tragic event with profound human and economic consequences. The invasion has inflicted staggering losses on both the people and the economy of Ukraine, erasing 15 years of development gains and exacerbating poverty. Macroeconomic indicators for Ukraine in 2024 show growth, but the positive trend is slowing. After the recovery from the severe 2022 decline (-28.8% GDP), the low comparison base that fueled a record +5.3% growth in 2023 has now been exhausted. The Ministry of Economy forecasts 3.6% y/y growth for 2024. This slowdown is attributed to factors such as a low harvest, weaker external demand, intensified hostilities, strikes on energy and critical infrastructure, and increased staff shortages. Key growth drivers in 2023 included the maritime corridor, boosting agribusiness and steel exports, defence orders supporting machine building, and international aid bolstering consumer demand. With the ongoing war and plateauing external support, growth is projected to slow to 2.5% in 2025. However, it could be stronger if the security situation stabilizes and reconstruction and recovery efforts gain momentum.
Ukraine's budget deficit grew by about 33% in 2024, reaching around USD 42 billion, though it was lower than the projected 43.8 billion, according to the National Bank of Ukraine. A record influx of foreign aid in December helped cover state budget expenses and create a liquidity reserve for early 2025. The primary spending areas were defence, security, and social programs. Ukraine also received USD 41.7 billion in foreign budget support throughout the year. The budget deficit is expected to remain large, at around 20% of GDP in 2025 and 2026 (data OECD). With the war assumed to continue through 2025, the government plans for defence and security spending to rise to 26.3% of GDP, excluding in-kind support from external partners. However, a ceasefire may reduce this share. The 2025 budget aims to curb spending on social services, healthcare, and education to 8.4% of GDP, about 1% lower than in 2024. The government intends to finance 57% of spending through domestic revenues, boosted by inflation, a depreciating exchange rate, and increased corporate income, excise, and military levies on labour income—valued at 1.6% of GDP. The large deficits will push public debt to around 110% of GDP in 2025, with three-quarters of new debt raised externally. External grants are expected to finance 1% of GDP. External financial support of USD 27.2 billion in 2024 (up to mid-November) and military and humanitarian aid of USD 32.7 billion in 2024 (up to September 1) have helped maintain foreign exchange reserves and stabilize the exchange rate against USD between July and late November 2024. Meanwhile, inflation accelerated to 12% in 2024, driven by groceries as well as electricity (data National Bank), and is expected to converge towards the central bank’s 5% target in the medium term.
The average unemployment rate was estimated at 14.2% in 2024 by the IMF, from 19.1% one year earlier. However, the International Organization for Migration (IOM) released a report highlighting the impact of nearly three years of war on Ukraine’s employment, mobility, and labour market. The report found that recently displaced individuals were more likely to be unemployed (24%) compared to those displaced for over a year (13%), reflecting the challenges of economic integration for newcomers lacking networks and resources. Poverty in Ukraine increased by 1.8 million in 2023 due to reduced employment and incomes. Despite labour market slowdowns, social assistance programs helped, with 20% of households receiving conflict-related support (World Bank). The situation remains difficult, as only 40% of adults were employed in Q3 2024, and more than half of households reported worse financial well-being compared to February 2023.
| Main Indicators | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 178.34 | 184.10 | 189.83 | 207.40 | 221.25 |
| GDP (Constant Prices, Annual % Change) | 5.3 | 3.0 | 2.5 | 5.3 | 4.5 |
| GDP per Capita (USD) | 5,241 | 5,505 | 5,759 | 6,067 | 6,412 |
| General Government Balance (in % of GDP) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| General Government Gross Debt (in % of GDP) | 82.3 | 95.6 | 106.6 | 107.6 | 102.6 |
| Inflation Rate (%) | 12.9 | 5.8 | 9.0 | 7.7 | 5.0 |
| Unemployment Rate (% of the Labour Force) | 19.1 | 14.2 | 12.7 | 10.4 | 9.4 |
| Current Account (billions USD) | -9.66 | -14.95 | -27.14 | -21.75 | -12.97 |
| Current Account (in % of GDP) | -5.4 | -8.1 | -14.3 | -10.5 | -5.9 |
Source: IMF – World Economic Outlook Database, Latest data available.
Note : (E) Estimated data
The agricultural sector plays a major role in the Ukrainian economy. In 2023, it contributed to 7.4% of the GDP and employed 14% of the working population (World Bank, latest data available). With over 55% of its land designated as arable, Ukraine predominantly relies on agricultural products as its key exports. The country stands as a leading global agricultural producer and exporter, holding a vital position in providing oilseeds and grains to the international market (being one of the world's largest exporters of grain). The main crops are cereals, sugar, meat and milk. Furthermore, the country is rich in mineral resources, mainly iron, magnesium and rare earths, as well as in energy resources (coal and gas). However, the agriculture sector in Ukraine has suffered significant damage due to Russia's invasion, leading to a reduction in export capacity, the destruction of infrastructure and farmland, and a rise in fuel and input expenses. Despite the challenges, in 2024, Ukraine's agricultural exports hit USD 24.5 billion, making up 59% of total exports. This was the second-highest record after 2021’s USD 27.7 billion, nearing pre-war levels (data Agriculture Ministry).
The secondary sector employs around a quarter of the active population and accounts for 18.8% of the GDP (World Bank). The Ukrainian manufacturing sector is dominated by heavy industries such as iron (Ukraine is the world's seventh-largest producer of iron) and steel. These two sectors alone account for around 30% of the industrial production; however, steel production is below its pre-2008 level. Coal mining, chemicals, mechanical products (aircraft, turbines, locomotives and tractors) and shipbuilding are also important sectors. According to the State Statistics Service, Ukraine’s industrial production grew 4.9% in January-September 2024 vs. the same period in 2023. Steel and finished products rose 25.9%, while iron ore mining increased 22.7% y/y. However, production growth slowed due to rising electricity tariffs, logistics costs, and labour shortages from mobilization.
The service sector employs 61% of the workforce and contributes to 61.3% of the GDP (World Bank). Ukraine is a country of energy transit, historically transporting Russian and Caspian oil and gas to Western Europe and the Balkans, through its territory. Nevertheless, in the context of the conflict with Russia, Ukraine’s role as the main transit corridor has diminished, with Russia seeking alternative routes. After suffering from the impact of the COVID-19 pandemic, Ukrainian economic sectors were further hit by the consequences of Russia’s invasion. The massive infrastructure and facilities destructions, as well as mobilisation, disrupted activity, especially in the tourism sector. In contrast, Ukraine's banking sector remained remarkably resilient even after the start of the war and serves as a crucial pillar supporting the real economy. Foreign aid, high bond yields, soldier pay raises, and central bank policies post-invasion have driven banking sector profits: as of November 18, 2024, Ukrainian banks posted a net profit of UAH 117.63 billion for the first nine months of the year, up 7% y/y, according to the NBU. PrivatBank led with 41% of total sector profits, while MTB Bank saw the fastest growth, with profits surging 13 times year-over-year.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 14.1 | 25.2 | 60.7 |
| Value Added (in % of GDP) | 7.4 | 18.8 | 61.3 |
| Value Added (Annual % Change) | 7.6 | 6.8 | 5.0 |
Source: World Bank, Latest data available.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist - Business Environment Rankings 2014-2018
See the country risk analysis provided by Coface.
Following Russia’s invasion in February 2022, Ukraine's government declared martial law, mobilised its armed forces and called on citizens to resist. Western countries adopted an unprecedented range of sanctions against Russia and provided significant financial and humanitarian support, training and weapons to Ukraine. Ukraine launched its biggest counteroffensive in an effort to retake captured regions in the summer of 2024, further intensifying the conflict. However, issues including weak supply lines and a lack of personnel made it less successful. The United States persisted in offering significant military assistance, including cutting-edge equipment and instruction. However, internal disputes and logistical difficulties caused aid shipments to be delayed in the last year of the Biden administration, which had an impact on Ukraine's operational capabilities. In October 2024, the EU and its G7 partners decided to provide USD 50 billion to Ukraine to help with its humanitarian, military, and fiscal needs. In November, President Joe Biden authorized Ukraine to use powerful long-range American weapons inside Russia, while in September, the EU Parliament passed a resolution calling on member states to allow Ukraine to strike “legitimate military targets on Russian territory” with its own weapons.
Significant changes in the U.S. strategy for the Russo-Ukrainian conflict are expected as Donald Trump takes over as president. In the event that a ceasefire with Russia is reached, the administration is pushing for Ukraine to hold elections before the end of the year. Ukrainian officials, however, have voiced their reservations and called this idea a "failed plan" if it does not include full security guarantees to stop Russian aggression in the future. They contend that the current martial law makes elections impossible and emphasize the necessity of a stronger plan from important allies. In his initial week in office, President Trump halted foreign aid, adding to uncertainties about continued support for Ukraine. Trump has also indicated a desire to negotiate directly with Russian President Vladimir Putin to achieve a significant resolution to the conflict. Furthermore, Trump criticized Ukrainian President Volodymyr Zelenskyy for not making a deal with Putin to avoid the war and has mocked Ukraine's reliance on U.S. aid. This approach suggests a potential shift towards bilateral negotiations, possibly sidelining Ukrainian interests. Furthermore, Trump's administration has proposed a ceasefire based on current frontlines, aiming to force both sides into peace talks.
The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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