Ukraine's economy is reeling under heavy assault by Russian forces, with real GDP growth slowing in April due to sustained attacks on the energy system. Ukrainian Commander-in-Chief Oleksandr Syrskyi warned of a worsening battlefield situation after Ukrainian troops retreated from Berdychi, Semenivka, and Novomykhailivka villages in the Donetsk region in May.

In a recent Telegram post, Syrskyi noted that the situation along the frontline is highly dynamic, with some positions "changing hands" several times a day. "The most difficult situation is in the Pokrovsk and Kurakhove directions, where fierce battles continue. The enemy has engaged up to four brigades in these directions and is trying to develop an offensive west of Avdiivka and Marinka, making its way to Pokrovsk and Kurakhove," Colonel General Syrskyi wrote.

The whole of the northeast of the border is seeing heavy fighting that has been made worse as Ukraine is losing the drone war as Russia introduces new devastating glide bombs against which Ukraine has little defence.

The war's toll on Ukraine’s economy is also mounting. Despite new US $61bn aid package approved on April 20 aimed at bolstering Ukraine's defence, the White House acknowledges that immediate results are unlikely.

US National Security Adviser Jake Sullivan stated, "Russian successes on the battlefield in the near term" are expected despite the recent funding package, though he emphasized that the aid would help "hold the defence" and ensure stability against Russian attacks. Looking ahead, Sullivan noted that Ukraine plans to "move forward to regain the territory taken by the Russians" in 2025.

Meanwhile, Ukrainian intelligence reports suggest that the capture of the strategic city of Chasiv Yar in the Donetsk region by Russian forces is only a matter of time. Recent breakthroughs by Russian forces have disrupted the rotation of Ukrainian troops and achieved tactical success in the Ocheretyne settlement. Large Russian forces are also attacking in the Kharkiv and Sumy regions, aiming to take control of Kharkiv city , Ukraine’s second largest city that is a stone’s throw from the Russian border.

According to the Institute for Economic Research (IER), Ukraine's GDP grew by 4.1% y/y in April, down from 4.8% in March. The National Bank of Ukraine (NBU) reports that the electricity deficit will negatively impact real GDP growth by 0.6 percentage points in 2024 and 0.5 percentage points in 2025. Ukraine is expected to import $800mn worth of electricity this year and $600mn in 2025.

"The limitations in the electricity supply will lead to a further decrease in the GDP growth rate. Among the positive news is that exports and imports continued growing thanks to better logistics through the Ukrainian maritime corridor and road transport," IER stated.

On a positive note, the Ukrainian Armed Forces (AFU) have managed to push Russia’s navy away from the coast, improving access to shipping and boosting exports. The end of the Polish border blockade in late April also contributed to increased exports, and the national rail company Ukrzaliznytsia continues to report high growth rates in transportation.

"Better logistics contributed to revitalizing the results of metallurgy and iron ore mining. The growth rates in construction were high, partly related to the construction of fortification structures," IER added.

The NBU predicts that economic growth will slow to 3% in 2024 due to the loss of energy infrastructure and an expected electricity deficit of about 5%. However, GDP growth is expected to accelerate to 5.3% in 2025 and 4.5% in 2026.

The budget deficit forecast remains unchanged at 20.7% of GDP for 2024, with international aid being crucial to cover the shortfall, amounting to $37.9bn this year. External financing is predicted to gradually decrease to $25.1bn in 2025 and $12.6bn in 2026.