In 2024, Ukraine’s GDP will be 25% lower than before the war. This spectacular figure is mainly explained by the occupation of 15% of the country by the Russians – industrial territories now economically devastated – and by the reduction in the active population, which was 18 million people before the conflict. Since the start of the war, the Ministry of Defense has announced that 700,000 people have been mobilized in the army, 100,000 in the police, 90,000 in border protection. The next mobilizations could affect 500,000 other people. According to the United Nations, almost 30,000 civilians were killed outside the occupied territories – these figures do not include, for example, the Mariupol massacre. And almost 8 million people, mainly women and the elderly, have left the country. However, the population is expected to increase again this year due to the return of some Ukrainians to their homeland.
More men on the front or in the factories?
The challenge facing Ukraine’s economy is similar to its military challenge. The army must repel the Russians with fewer men, less equipment, less ammunition. The country’s economy must remain dynamic with less human capital. Companies lost 10 to 20% of their workforce due to the mobilization. However, the economy must generate income to support Ukrainians, finance the war effort, repair infrastructure destroyed by the enemy, limit its dependence on external financial aid, with few workers. A law was to be discussed in Parliament from January 11 to extend conscription. It was postponed indefinitely. In question, its direct financial cost but also the awareness of the power that increasing the number of people mobilized would be to the detriment of economic growth, and therefore of resources potentially allocated to the war effort, in a context where the Ukrainian public finances are more than fragile.
The banking system is not asphyxiated
The IMF expects at least 3% growth this year, after 5% in 2023. The Ukrainian economy is holding up because people are working and businesses are showing resilience that seems foolproof. The general director of Crédit Agricole Ukraine, Carlos de Cordoba, emphasizes that the company accounts for 2023 show a “remarkable adaptation” thanks to “very strong energy and solidarity, within and between companies”. Since the repatriation of dividends to the countries of origin of foreign multinationals is prohibited, their profits are placed with banks, which gives great liquidity to the financial system.
Electricity also works. The Ukrainians have become so masters in their ability to protect their grid, repair it and, where necessary, use generators, that the Russians have abandoned the idea of cutting the power with missiles. The tech sector continues to grow, driven by the huge investments made by the country in the field of cybersecurity and defense industries, with drones in particular. Agricultural logistics are operational, including for export. Even as Russia withdrew from the grain deal in July 2023, Ukrainian grain exporters line the Romanian, Bulgarian and Turkish coasts and supply North Africa. Thanks to their ingenuity, the volumes of exported cereals almost returned to their pre-war level.
In Kiev, despite the now almost daily missile attacks, the stores are busy, the restaurants are full until 10:30 p.m., the time for customers and staff to have gone home at midnight, the hour of the cover. fire. This quasi-normality of economic life in the capital – people going to offices and factories, dynamic businesses, urban traffic jams – contrasts with the extreme violence of the front.
Under Russian fire, industry holds on
Industrial production collapsed at the outbreak of war but has now stabilized, albeit at a very low level. Some factories have managed to ensure great business continuity, even in degraded circumstances. This is the case of Centravis, a world leader in steel tubes intended for the nuclear, coal and automobile engine manufacturers sectors, whose main factory is located in Nikopol, 6 kilometers from the front, regularly under fire. artillery and drones. Its director, Frenchman Alexandre Joseph, explains that the factory’s activity has never stopped. Shelters were built inside the site. Its profitability is in line with its pre-war results and investments are increasing. It is a victory for Ukraine that these types of businesses are thriving, even though they are under constant threat of Russian fire.
Proof of this resilience of the Ukrainian economy, the IMF forecasts that GDP per capita will return to its 2021 level by 2027. The country’s investment rate is at its highest since 2018. Unemployment, although very high – 20% of the active population – is falling and inflation, at around 5%, is almost normalized, and even slightly lower than wage growth, which allows purchasing power to begin to rise.
A record budget deficit
The country’s main economic problem does not concern its activity but its finances. The budget deficit has, unsurprisingly, reached a record level in 2023, at almost 30% of GDP, or around $50 billion, driven by military spending and internal security. International aid has been the main source of financing this deficit since the start of the war. Of course, tax revenues are also increasing, thanks to economic growth and the fight against corruption. However, even if the country’s public debt remains reasonable – 80% of GDP – it is difficult to imagine that Ukraine will be able to finance its entire deficit in the coming years by calling on international financial markets. Good news, however: on February 1, the 27 countries of the European Union reached an agreement on aid of 50 billion euros over four years, until then blocked by Hungarian Prime Minister Viktor Orban.
The specter of printing money
The situation is more complex in the United States where parliamentarians close to Donald Trump do not want to hear about a new tranche of aid to Ukraine, to the great satisfaction of Vladimir Putin. If this financial support for Ukraine ever falters, the country would undoubtedly have to make up part of its war effort by printing money, that is to say, through inflation.
The discontent and disorder that this could generate in the country would constitute a victory for Russia, and therefore a defeat for us Europeans. One of Ukraine’s main challenges in 2024 is maintaining a dynamic economy to finance a strong army. His allies can, and must, help him.
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