Wartime estimates: How much Ukraine’s economy will down in 2022

Forecasting is considered ungrateful even in peacetime, let alone in wartime, when the factors are much greater, and the result depends on the hostilities, which no one can predict.

The general summaries of the year have already appeared. In the Q1 2022, Ukraine’s GDP fell by 15.1%. According to the Ministry of Finance, during the war Ukraine spends about $10 billion a month, of which $5-6 billion must be covered by external revenues.

The business situation is deteriorating

Since the beginning of the Russian military aggression against Ukraine, Ukrainian business has been operating wavily. Moreover, in May-June the situation can worsen. According to a June survey by the Advanter Group, 46% of Ukrainian companies have completely or almost completely ceased operations. Although previously the recovery was rapid. Even the National Bank of Ukraine says that the pace of recovery of enterprises in Ukraine has decreased.

This indicates the unresolved main business problems: access to financial resources, hiring the key employees, increasing difficulties with logistics. There is also inconsistency in the actions of the authorities, in particular the statements of some officials about raising taxes and returning to the practice of total business inspections. Many companies of Ukrainian business run out of their own “reserve of strength” in the complete absence of support from the state. This should be a reason to make urgent incentive decisions for business, and not just a statement of the fact that the country is at war.

Wartime expectations

Organizations that usually forecast Ukraine’s economic development took a time-out at the beginning of the armed conflict, expecting developments and solid trends in assessing the timing of the end of hostilities and the prospects of the country’s economy as a whole.

Some analysts in assessing the economic prospects of Ukraine in 2022 as a possible “positive” took into account two factors: the rapid end of hostilities and the unblocking of ports. However, as the fighting dragged on, more negative assessments and high rates of Ukrainian GDP falling (40% or more) started to prevail.

Forecasts for the year are of a wide range: from at least 33% (expectations of the National Bank) to 46.5% (forecast of the Economic Intelligence Unit). According to the most modest estimates, the war has already caused more than $600 billion of damage to Ukraine, and the recovery will cost at least $1.1 trillion and may take more than 15 years.

In 2014-2015, when there was an active phase of the armed conflict in Donbass, Ukrainian GDP fell by 6.6% and 9.8%, respectively. In 2021, Ukraine’s GDP grew by 3.4% after declining by 3.8% in 2020, its nominal volume last year was about $200 billion.

According to the Economist Intelligence Unit, Ukraine is unlikely to reach pre-war GDP levels before 2037. However, S&P is confident that Ukraine’s GDP will reach pre-war levels in five years.

In general, quantitative estimates of Ukraine’s GDP decline due to the war unleashed by Russia are quite conditional due to the continuing acute phase of hostilities, the daily increase in losses of Ukraine’s production and infrastructure potential, and the lack of serious signs of not only ending but also weakening Russian military aggression.