After Three Years of War, Ukraine’s Economy Still Holds On
While some are already eyeing the wealth of a post-war Ukraine, the country’s economy continues to endure the devastating impact of the Russian invasion.
Last week, The Telegraph revealed details of a plan by Donald Trump to seek $500 billion in reimbursement for U.S. aid. His proposal, which involved rights to exploit certain mineral resources and infrastructure, was rejected by Volodymyr Zelensky. Yet, it raises pressing questions about the state of Ukraine’s war-torn economy and its eventual reconstruction.
Three years into the Russian invasion, Ukraine’s economy has shown remarkable resilience. This endurance is largely due to international support but also to structural adaptations initiated after the annexation of Crimea and the outbreak of war in Donbas. “In 2014, Ukraine’s economy suffered a first major shock and was forced to reorient itself away from Russia and toward Europe,” explains Maksym Samoiliuk, an economist at the Centre for Economic Strategy, a Ukrainian non-governmental research institute. “By 2022, it was more stable and better prepared, with a more competent government, thanks in part to years of reform aimed at moving closer to the European Union.”
Yet, while Ukraine’s economy has not collapsed entirely, it still faces immense challenges.
The Return of Inflation
After plummeting nearly 30% in 2022, Ukraine’s GDP rebounded by 5.3% the following year, according to figures from the Ukraine War Economy Tracker. This surprising growth was fueled in part by soaring public expenditures and a low base of comparison from the previous year. In 2024, the pace slowed slightly, with GDP growth recorded at around 4%. “Three years into the war, Ukraine’s economy remains about a quarter smaller than its pre-war level,” summarizes Dimitar Bogov, lead economist for Eastern Europe and the Caucasus at the European Bank for Reconstruction and Development (EBRD), based in Kyiv.
Beyond the decline in economic output, Ukraine has also struggled with surging inflation, driven by the destruction of infrastructure and severe supply chain disruptions. On top of war-related factors, global price increases have exacerbated the situation. “After peaking at around 25% in October 2022, inflation was brought under control thanks to sound policies from the National Bank of Ukraine (NBU) and international financial assistance,” Bogov explains. “By spring 2023, it had fallen below the 5% target.” However, inflation has since surged again, reaching 12.5%, partly due to the need to import energy following Russian strikes on Ukraine’s power grid. The NBU also cites poor harvests in 2024 caused by drought, as well as labor shortages.
“Inflation remains manageable, but it is increasingly a matter of economic policy and what the NBU chooses to do next—particularly regarding interest rate hikes,” Samoiliuk notes. Prices are expected to continue rising in the coming months, though they should fall back into single digits by the latter half of 2025, according to Bogov.
A Power Grid in Ruins
Russia’s targeted attacks on Ukraine’s electrical infrastructure are another major driver of inflation and economic disruption. “During the first year of the war, Ukraine was exporting electricity due to reduced domestic demand,” Bogov recalls. “Now, businesses are forced to import electricity from Europe, where prices are significantly higher. Some companies have had to cut production because they cannot pass these costs on to consumers.” These power shortages have had a major impact not only on inflation but also on economic output, making them a key reason for the economic slowdown in 2024.
A study by ETH Zurich in September estimated that Ukraine’s electricity production had fallen by 70% since the start of the war, largely due to the shutdown of the massive Zaporizhzhia nuclear plant, the largest in Europe. “Before the invasion, Ukraine’s power grid was reliable and robust—under certain conditions, its capacity was two to three times higher than demand,” explains Samoiliuk. “Today, the system is unstable. Businesses must either delay operations until power is restored or invest in costly backup generators.” With Russian forces now also targeting gas infrastructure, concerns are mounting that the situation could deteriorate further.
Two Weakened Pillars of the Economy
Agriculture is a cornerstone of Ukraine’s economy. In 2021, it accounted for nearly 10% of GDP, 18% of employment, and 44% of export revenues, according to the Kyiv School of Economics. After being largely halted at the start of the war, Ukraine’s grain exports via the Black Sea resumed under a deal brokered by Ukraine, Russia, Turkey, and the United Nations in July 2022. However, a year later, Russia withdrew from the agreement, leaving Ukraine to develop its own maritime export corridor. “The original deal only covered grain exports, which was a limitation—steel, for instance, is extremely difficult to export by rail,” Bogov notes. “After Russia’s unilateral withdrawal, Ukraine established an independent shipping route. Despite initial struggles, it has proven fairly resilient and has since expanded to include iron, steel, and container shipments.”
Following the initial collapse of trade at the onset of the war, Ukrainian exports have gradually recovered. By December 2024, they had reached $3.1 billion, up from $1.9 billion in March 2022, according to the National Bank of Ukraine. However, the country’s trade deficit continues to widen, surpassing $70 billion since the beginning of the invasion.
A new challenge looms on the horizon: Ukraine currently benefits from a suspension of EU import tariffs on its exports, a measure set to expire in June. The future of this arrangement remains uncertain. “Ukraine needs this exemption,” Samoiliuk stresses. “Before the 2022 invasion, trade was regulated by an association agreement that imposed tariffs and quotas, which were relatively restrictive. The EU lifted these limits to support Ukraine, and for the past three years, Ukrainian exporters have operated under this more favorable framework, turning increasingly toward the European market. While a fully liberalized trade regime is unlikely, new negotiations are necessary—but so far, we see no such talks taking place.”
Another key pillar of Ukraine’s economy, the steel industry, is also in trouble. In 2024, steel production stood at just 7.57 million tons—down from 21.2 million tons in 2021, according to GMK Center, a Ukrainian consultancy specializing in the metals market. The war has claimed several production sites, including the iconic Azovstal steel plant in Mariupol. Adding to these challenges, Washington recently announced a 25% tariff on Ukrainian iron and steel exports—a severe blow, given that these materials account for nearly 58% of Ukraine’s exports to the United States. In 2023 alone, they generated over $1 billion in revenue, according to Economy Minister Yulia Svyrydenko.
Despite these setbacks, Ukraine’s economy has displayed remarkable endurance. But as the war drags on, its ability to withstand continued shocks—and to lay the groundwork for reconstruction—remains uncertain.