Ukraine: Economic and Political Overview
In this page: Economic Outline | Political Outline | COVID-19 Country Response
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.
Nearly two 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. After contracting by nearly 30% in 2022, Ukraine's economy experienced a modest rebound last year, registering a growth of 2% (IMF, 3.5% according to the World Bank). The recovery can be attributed to sustained donor support, a more stable electricity supply, heightened government spending, improved agricultural yields, and the redirection of certain exports through Ukraine's western borders. The economic forecast for Ukraine anticipates growth rates of 3.2% in 2024 and a robust 6.5% in 2025 (IMF), with private consumption and public investments as key drivers. However, GDP would still be 20% below its pre-war levels and the overall economic outlook remains contingent on factors such as the progress of the ongoing war, the influx of foreign funds, and the evolution of export patterns.
Following an increase in 2023 (20.5% of GDP according to the EU Commission estimates), the general government deficit is expected to stay elevated in 2024 (19.7%). This is attributed to substantial expenditures associated with the ongoing war effort on the expenditure side, coupled with weak revenue growth stemming from a modest increase in GDP. In 2025, a reduction in total expenditure, particularly in war-related expenses, is anticipated, contributing to a partial narrowing of the fiscal deficit (to 12% of GDP). in March 2023, Ukraine secured a 48-month Extended Fund Facility (EFF) arrangement, granting access to USD 15.6 billion. This arrangement is integral to a larger USD 122 billion support package for Ukraine. The IMF-supported program, endorsed by the authorities, is designed to establish policies that uphold fiscal, external, price, and financial stability amid the heightened uncertainty resulting from the ongoing war. The debt-to-GDP ratio has been increasing steadily since the start of the invasion, reaching 88.2% in 2023, and is projected to surpass 100% by 2025. A tight monetary policy, falling food prices, and rapid repairs of the energy infrastructure contributed to a reduction in inflation, which was estimated at 17.7% last year. Assuming a continuation of easing supply constraints and a slowdown in global prices, inflation should further decrease throughout the forecast horizon (to 8.6% by 2025).
The labour market has shown signs of stabilization in 2023, driven by reduced net migration outflows and the partial return of internally displaced persons. However, the persistently high number of displaced individuals, both abroad and within Ukraine, will continue to exert pressure on the labour market, causing imbalances across regions and sectors. Despite anticipated economic growth, the unemployment rate – at 19.4% in 2023 - is projected to stay elevated, albeit on a declining trend. Concurrently, regional and sectoral labour shortages, coupled with an expected decrease in inflation, are likely to contribute to a recovery in real wages, especially in 2025.
| Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 160.52 | 177.20 | 188.94 | 193.60 | 202.56 |
| GDP (Constant Prices, Annual % Change) | -29.1 | 5.0 | 3.2 | 6.5 | 5.0 |
| GDP per Capita (USD) | 4,583 | 5,337 | 5,663 | 5,642 | 5,774 |
| General Government Balance (in % of GDP) | -15.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| General Government Gross Debt (in % of GDP) | 78.4 | 82.9 | 94.0 | 96.7 | 95.9 |
| Inflation Rate (%) | 20.2 | 12.9 | 6.4 | 7.6 | 6.2 |
| Unemployment Rate (% of the Labour Force) | 24.5 | 19.1 | 14.5 | 13.8 | 11.6 |
| Current Account (billions USD) | 7.97 | -9.75 | -10.83 | -15.89 | -14.14 |
| Current Account (in % of GDP) | 5.0 | -5.5 | -5.7 | -8.2 | -7.0 |
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 2022, it contributed to 8.2% of the GDP and employed 15% of the working population (World Bank). The country stands as a leading global agricultural producer and exporter, holding a vital position in providing oilseeds and grains to the international market. With over 55% of its land designated as arable, Ukraine predominantly relies on agricultural products as its key exports. The main crops are cereals, sugar, meat and milk. Ukraine is the world's fifth-largest exporter of grain. Furthermore, the country is rich in mineral resources, mainly iron and magnesium, 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.
The secondary sector employs almost a quarter of the active population and accounts for 19.2% 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. Industrial production in Ukraine in January-June 2023 decreased by 2.9% compared to the same period in 2022 (when it decreased by 31.9% following Russia’s invasion). The iron and steel sector has experienced one of the steepest declines in production, with steel production dropping by 31.4% in the first half of the year.
The service sector employs 61% of the workforce and contributes to 60.8% 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 tensions with Russia, Ukraine’s role as the main transit corridor has diminished, with Russia seeking alternative routes. Ukraine's banking sector exhibits a relatively modest asset-to-GDP ratio of 40%. While the top-5 banks show a moderate level of concentration, the sector displays a significant degree of state ownership, constituting 50% of net assets. Despite these dynamics, Ukraine's banking sector remained remarkably resilient even after the start of the war and serves as a crucial pillar supporting the real economy. 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.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 14.7 | 24.5 | 60.9 |
| Value Added (in % of GDP) | 8.2 | 19.2 | 60.8 |
| Value Added (Annual % Change) | -28.4 | -43.2 | -23.6 |
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.
Since he was elected President in April 2019, former actor and television producer Volodymyr Zelensky promised to prioritise two issues highlighted during his campaign, corruption and the conflict in eastern Ukraine (Donbass). The absolute majority obtained at the legislative elections of July 2019 allowed him to launch a reform program but with many challenges, as illustrated by the political crisis that emerged in October 2020. A controversial ruling by the Ukrainian Constitutional Court cancelled key anti-corruption legislation, notably the requirement for government officials to file e-declarations of their assets. This led Ukraine's main donors, including the IMF, to suspend their funding. However, in 2022, internal divisions were put aside and as Ukraine was united around the political and military goals to restore its territorial integrity and the legally recognised borders of 1991, Zelensky enjoyed broad popular support.
Indeed, the situation escalated considerably since the Russian and Ukrainian presidents met in Paris in December 2019 regarding the Donbas issue. A tripartite meeting between Ukraine, Russia and the EU took place in Minsk in December 2019, leading to the renewal for five years of the contract binding Gazprom and Naftogaz governing the transit of gas from Russia to the EU by Ukraine. However, Russia completed in mid-2021 the construction of its Nord Stream 2 pipeline project linking Russia and Germany and doubling the capacities of Nord Stream 1, which would cause revenue losses for Ukraine of around 3 billion USD per year. Germany warned that the pipeline would not be allowed to come into service in the event of a new escalation in Ukraine, and following Russia’s large-scale military invasion of the country launched at the end of February 2022, Nord Stream 2 certification was withheld. 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.
The war with Russia continued throughout 2023, causing significant devastation and displacement of the Ukrainian population. Meanwhile, Ukraine continued its efforts to join the European Union, and in June 2023, the country was granted candidate status, a major step forward in its integration process. Ukraine received continued international support throughout 2023, including military aid, humanitarian assistance, and diplomatic backing. The United States, the European Union, and other countries played a crucial role in supporting Ukraine's resilience and resistance against Russia. Attempts were made to resume negotiations between the two countries; however, not much progress has been achieved so far.
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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