Ukraine Country Report May22 - May, 2022

May 6, 2022

Ukraine’s real GDP will shrink by at least a third this year due to the war, according to the National Bank of Ukraine, but in 2022 the domestic economy will gradually recover as most of the country have been liberated from Russian forces and is already going back to work.

The number of enterprises with ceased operations decreased from 30% in early March to 23% in early April, the NBU said. Electricity consumption and production remain stable, and the number of open public consumption establishments and their turnover were increasing in April. The resumption of ticket sales by Ukrainian Railways (UZ) and steady demand also testify to the revival of economic activity.

Major problems remain. According to the EBRD, at present the war is happening on territories that produce around 60% of Ukrainian GDP. The physical damage to the country is estimated to be about $100bn and Kyiv Economic School estimates the total economic damage – including lost earnings – is about $600bn as of the end of April. In a column for The Economist, Prime Minister Denys Shmyhal also said that in the long run, the damage to Ukraine’s economy could reach up to $1 trillion, the equivalent of five times the GDP of 2021.

The biggest constraint on the economy is the naval blockade in the Sea of Azov and the Black Sea. Grain exports have decreased by almost 90%, while total exports fell by half in the last two months. Exports of commodities via the sea accounts for around 40% of Ukraine’s GDP and as long as the war persists the only export route is via a port in Romania that is already at maximum capacity and rail that can only carry 10% of the regular export volumes.

The final assessment of the economic losses from Russia's full-scale invasion of Ukraine will depend on the duration of hostilities, the NBU says.

When the war is over the international community could provide significant aid to Ukraine that could drive a fast recover. The World Bank is preparing a $170B aid package amid the Ukraine war fallout. The World Bank cut its forecast for global economic growth this year due to the Russian war in Ukraine and is preparing a $170B aid package for nations to deal with the confluence of the war, pandemic, and sky-high inflation. The Washington-based institution lowered its forecast for global growth in 2022 to 3.2% – a sharp drop from the 4.1% prediction in January, World Bank President David Malpass told reporters on April 17. The decline stems from a cut in Europe and Central Asia's outlook, which includes both Russia and Ukraine. It is planned that $50B will be used over the next three months, and an additional $120B will be allocated next year. This week, the initiative will continue to be discussed during the annual spring meeting with the International Monetary Fund.

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