Russia’s full-scale war on Ukraine has triggered a deep crisis that will have far-reaching consequences for the Ukrainian economy.
As a result of the war, GDP will fall by more than one-third, and inflation will surge to many times its target level .
Non-bank financial institutions, which have only started to recover from the negative impact of the pandemic, faced all of the risks the war brings. Unlike the banks, some market players could not cope with operational risks: financial institutions stopped their operations, their processes were disrupted, and information was lost. As of now, only about two thirds of the sector’s participants submit financial statements.
After the start of the full-scale invasion, Ukraine and the democratic states put unprecedented pressure on the aggressor regarding the potential famine in African countries if grain exports from Ukraine are not resumed. The efforts of democratic countries created the Grain Corridor, which made it possible to restore the export of grain from Odesa ports. A small volume was transported across the Danube, as well as through the Western border, but this volume could not satisfy the need for grain exports from Ukraine and stop hunger in African countries.
Cargo flows have also changed, since the goods export-import (except for the Grain Corridor) now goes not through the Black Sea, but through the Western border of Ukraine. The ‘Grain Corridor’ not only helps replenish the budget and GDP of Ukraine, but also saves Odessa and the southern regions from a significant loss of business.
The war and its further escalation have become a dominant risk for the global economy. The invasion has caused deaths, destruction, refugee flows, and rising energy and food prices. Ukraine’s international partners are currently providing the country with military, financial and humanitarian assistance. At the same time, sanctions are restricting the economic potential of Russia. The war will result in a noticeable slowdown in production and a further acceleration in inflation worldwide. Meanwhile, Ukraine has the opportunity to make progress with its European integration.

The main threat is the ongoing Russian aggression

A key risk – a full-scale Russian invasion of Ukraine – has materialized. At the end of February, the enemy invaded Ukraine, advancing from the north, south and east. Belarus provided territory from which Russia launched its attack. At one point, about 35% of Ukraine’s territory was either under hostilities, encircled, or temporarily occupied. Heroic fighting by Ukrainian soldiers thwarted Russia’s invasion plans. Kherson is the only oblast center that Russia has managed to occupy since 24 February. Ukraine’s northern regions have already been liberated from the invaders, and Russian troops have also been partially pushed back in the south and in Kharkiv oblast. At present, the fiercest fighting is taking place in eastern Ukraine. Russia continues to fire missiles at all of the regions of Ukraine. Enemy troops are violating all of the rules and customs of war, including those relating to the treatment of civilians. Tens of thousands of civilians have been killed, homes and civilian infrastructure have been destroyed, and supplies and the property of people and businesses have been stolen or destroyed. Looking ahead, protracted fighting will be the key risk, even if the hostilities are localized. This will require the economy to operate under extreme conditions for a long time, threatening to deepen economic decline and increasing the need for assistance from partners. The negative impact of the war on the global economy will increase.

Ukraine has made progress in European integration

On 28 February, Ukraine signed an official request to join the EU, which has already been endorsed by the European Parliament and European Commission (EC). Based on the EC opinion, member states may confer candidate country status on Ukraine. After that, accession negotiations with the EC will begin. Accession to the EU involves bringing national legislation, institutions and standards into line with the union’s requirements to achieve the four freedoms of the EU: the free movement of goods, capital, services, and people. This will ensure transparent conditions for doing business in Ukraine, open up the Ukrainian economy to European capital, and the EU to Ukrainian goods. The experience of new EU member states shows that EU membership contributes to the faster growth of the economy and household income, while reducing the cost of borrowing. The EU provides candidate countries with technical and financial assistance to enable them to carry out the required reforms. In the case of Ukraine, this assistance is likely to be combined with the assistance Ukraine will receive to rebuild its economy.
The war has become protracted, yet assistance from the nation’s partners only grows stronger. Ukraine and its partners search for a mechanism to finance Ukraine’s post-war recovery. Because of impact of the war, growth in the economies of Ukraine’s partner countries has slowed, and inflation rates remain elevated, primarily because of high commodity prices.
Destruction of infrastructure slows the Ukrainian economy and pushes prices up. Unprecedented assistance from partners has boosted the Ukrainian economy’s resilience margins. By the end of November, international reserves exceeded pre-war levels.

The war is hitting Ukraine’s partners.

In 2022, the economies of partner countries in North America and Europe, primarily Central and Eastern, sharply slowed down, in particular due to the war and accelerated by it inflation. The Chinese economy also slowed down, including effects through the policy of overcoming COVID-19A further slowdown of the world’s largest economies (USA, Eurozone and China) is expected in 2023. So the risk of a global recession increases, which will reduce the potential of countries to support the economy of Ukraine. Global inflation reached its highest levels in ten years.
Prices on commodity markets
Prices on commodity markets have declined but remain at historically high levels. The slowdown of the world economy, the opening of the “grain corridor” of Ukraine, and actual and expected receipts of gas and oil from alternative suppliers reduced prices on world commodity markets from the record levels of the first half of 2022. Yes, grain prices, including wheat and corn, fell from record levels the first half of the year, due in large part to the recovery of Ukrainian exports. Currently, they remain at a relatively high level. It is expected that thanks to the extension the work of the “grain corridor” and the expansion of areas under cultivation in the countries of the Southern Hemisphere, wheat prices will likely decline further.
The prices of steel and iron ore decreased through sluggish demand caused by a slowdown in the global economy, including China. Given the pessimistic global growth forecasts, the trend may continue.
At the same time, it is difficult for Ukraine to maintain export volumes of metals due to the loss of production and logistics capacities within the mining and metallurgy sectors
The trend in oil prices is downward primarily due to a slowdown of the world economy. Despite the russian blackmail, the price of natural gas in Europe is noticeable decreased due to mild weather in autumn, the filling of gas storage facilities, increasing supplies from Norway and receipts of liquefied gas (in particular from the USA, Qatar, Algeria and Australia). A reduction in energy prices is a positive factor for Ukraine as well. However, at this time prices remain high and volatile.

Macroeconomic and fiscal risks

The Ukrainian economy has been slowly recovering after a steep decline in the first half of 2022 due to large-scale Russian aggression. Loss of human capital and destruction of infrastructure, in particular energy assets, as a result of further Russian terrorist attacks and hostilities will cause a deep fall in the economy in 2022 and will restrain its recovery going forward. A high level of risk and uncertainty persists which complicates the work of the financial sector, but macro-financial stability is supported by significant International financial assistance.
Destruction of energy infrastructure deepen the losses of the economy
During the third quarter of 2022, the economy of Ukraine gradually recovered. This was promoted at first by stabilization of the front line, and the liberation by the Armed Forces of more than half of the territories occupied by Russia in 2022. So, slowly production and supply chains are being adjusted.
However, starting from October, a serious risk for the economy is ongoing and significant interruptions in electricity supply due to regular and large-scale shelling of energy production and distribution assets. Shortage of electricity leads to business downtime, and complicates logistics and sales. So, in the 4th quarter, production volumes started again shrink. Energy problemsreduce profitability and solvency and increase credit risk. Some companies may go out of business. According to current estimates, real GDP this year will decrease by about a third.
However, at the end of 2022, corporations began to adapt to periodic missile attacks and the lack of electricity by purchasing diesel or gasoline generators, and there was already enough fuel in the country at that time. Thus, non-energy-intensive businesses returned to continuous operation and resumed production.

Grain corridor

The agreement on the functioning of the “grain corridor” contributed to the significant growth in exports of agricultural products, and transport and other services, and created better conditions for storage of this year’s harvest.
Hostilities in Ukraine have had a major impact on the grain trade. From March to November, Ukraine exported an average of 3.5 million metric tons of grains and oilseeds per month, a steep drop from the five million to seven million metric tons per month it exported before the war began in February .
International aid in the 2nd half of the year will compensate for the trade deficit and cover outflows of capital
The deficit in trade in goods and services remains significantly higher than pre-war levels. The launch of the”grain corridor” increased the volume of food exports. Export activation was also facilitated by the increase in capacity of Danube ports, railways, and road routes. Adjustment of the official exchange rate of the hryvnia and cancellation of a series of tax benefits slowed down the rapid increase in imports. A significant services deficit results from the in-country expenditures of Ukrainian refugees forced to live abroad. However, thanks to international aid in the form of grants, the volumes of which have increased significantly in the second half of the year, and money transfers to Ukraine, which are practically unchanged compared to the previous year, the current account in January – October was consolidated with a surplus.
The IMF program will contribute to the optimization of state finance
Substantial support in ensuring the stability of the economy has been provided by the IMF Executive Board extending on December 19 a four-month monitoring program. Its execution is a prerequisite for starting a full-fledged program of funding from the Fund. The Monitoring program as well asinternational financial coordination and support from other partners, and further implementation structural reforms within Ukraine will increase macro stabilization. Current programs involve steps to increase the amount of tax revenues and activation of the domestic debt market, minimization of risks of emission financing of the budget, provision of long-term stability of the financial sector and efficiency and transparency of state enterprises and banks.


  1. The Ukrainian economy has been slowly recovering after a steep decline in the first half of 2022 due to large-scale Russian aggression.
  2. The key source of risks for economic stability is the war that drags on, terrorist attacks on energy infrastructure, and depressed economic activity they provoke.
  3. International assistance for Ukraine has increased and provides a solid support for state budget, balance of payments, and international reserves.
  4. Destruction of energy infrastructure and slower economic recovery increases credit risk. War-related losses may amount to 30% of GDP. However, at the end of 2022, corporations began to adapt to periodic missile attacks and the lack of electricity by purchasing diesel or gasoline generators, and there was already enough fuel in the country at that time. Thus, non-energy-intensive businesses returned to continuous operation and resumed production.
  5. Prices on commodity markets have declined, yet remain historically high.
  6. The “Grain Corridor” made it possible to organize the export of grain products and had a positive impact on the economy of Ukraine.
  7. The further development of the economy will depend on how quickly the war in Ukraine ends. The recovery of Ukraine after the war is expected to be fast and appears very promising