Ukraine country report - February, 2024

February 2, 2024

Ukraine's economy grew 5% in 2023, far better than anyone expected, following a substantial decline of 28.8% in 2022, according to Yulia Svyrydenko, the First Deputy Prime Minister and Minister of Economy.

This resurgence was described as "recovery growth," with the National Bank providing a slightly more optimistic estimation of a 5.5% GDP growth for the same period.

The NBU provided a comprehensive summary of the war's devastating impact on the nation's economy, highlighting a 30% contraction in GDP attributable to the Russian Federation's full-scale invasion. Ukraine also witnessed a significant migration crisis, with many Ukrainians forced to flee, exacerbating inflationary pressures.

Andriy Pishnyi, the head of NBU, underscored the critical reliance on international financial assistance due to the dire economic straits precipitated by the loss of a third of the country's GDP and 20% of its territory.

Looking ahead to 2024, the Ukrainian government has projected a 4.6% GDP growth, accompanied by substantial increases in investment and trade. Notably, the defence sector emerged as a pivotal driver of economic activity in 2023, contributing significantly to the overall economic performance.

Despite the positive growth trajectory, Ukraine's export sector faced challenges in 2023, with a marked decrease in the value of exports, which is anticipated to impact economic activity and potentially elevate unemployment levels in 2024. The industrial sector, in particular, is bracing for a downturn, with many enterprises forecasting adverse economic outcomes due to logistical challenges and rising operational costs.

The World Bank's outlook suggests that active hostilities will persist into 2024, with expectations of a modest recovery in exports and investment in the subsequent year, contingent upon a stabilisation of the geopolitical landscape. However, the bank also highlighted that the regional growth rates would likely remain subdued compared to pre-pandemic levels.

Amid these economic challenges, the banking sector has seen a surge in non-performing loans (NPLs), primarily due to the war's direct impact on businesses and the broader economic downturn. This trend has also adversely affected the capitalisation of agricultural companies, with a significant decline reported in the last quarter of 2023.

And Ukraine remains plagued by corruption with a fresh scandal breaking out in January where senior members of the Defence Ministry were accused of a $40mn artillery shell procurement scam. Ukraine has a corruption problem that it needs to solve if it is to attract the hundreds of billions of dollars of private sector money needed to rebuild the country.

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