November 24 marks nine months since the Russian invasion of Ukraine began. Despite the expectation of the Kremlin – and many international analysts – Ukraine did not fall within days.
It repelled Russia’s advance on the capital Kiev, turned the tide on the battlefields and has now retaken half of the territory captured in Russia’s initial push. Ukraine’s military now has initiative and momentum on the battlefield.
But the human cost of this resistance has been enormous. Tens of thousands of Ukrainian soldiers and civilians have lost their lives. The recent UN Human Rights report confirmed the death of 6,595 civilians and warned that there are many more likely to come. One-third of the 44 million population has been displaced: 6.5 million within Ukraine and almost 8 million as refugees in other European countries.
Having failed to complete its mission on the battlefield, Russian forces have resorted to hitting the civilian population with missiles and drone attacks. These have resulted in many civilian casualties and severe damage to critical infrastructure.
The blockade of Black Sea ports is preventing vital exports and starving the Ukrainian economy of the foreign currency it needs to buy critical imports. This, and the fact that the government has been forced to divert public money for military use, has put tremendous pressure on the economy.
So how has the Ukrainian economy adapted to this new wartime reality?
Economic consequences of the invasion
After losing a relatively modest 4% of GDP to the Covid-19 pandemic in 2020, the Ukrainian economy grew at a healthy 3.2% in 2021 and was expected to grow at the same pace in 2022. The sudden Russian invasion upset this forecast. The initial stage of the invasion hit the capital Kiev and ten regions, which jointly account for 55% of pre-war GDP.
Ukraine’s GDP shrank by 15.1% in the first quarter of 2022 – the year-on-year decline recorded in March 2022 was a massive 45%. In the second quarter, GDP fell by a staggering 37.2%.
Today, the fighting continues in the regions that account for less than 15% of pre-war GDP. But even so, the World Bank estimates that the Ukrainian economy will shrink by one-third in 2022, a far higher number than the typical threshold of 15% that economists use to start referring to a severe economic recession as an economic disaster.
What makes the economic consequences of the war even more dramatic is that the aggregate numbers above have unequal distribution across the country and socioeconomic groups. One way to illustrate this is to look at the extreme poverty rate, defined here as living on less than US$5.5 per person per day.
Before the war, only 2.5% of Ukrainians lived in extreme poverty, similar to Italy and Spain. The war abruptly changed this. The World Bank estimates that the number of Ukrainians in extreme poverty will likely increase tenfold in 2022 and will continue to grow in 2023. The poverty rates will be higher still in the regions closer to the front line, due to shortages.
This will accelerate the inflation rate and erode purchasing power. Government support for the low and middle-income parts of the population is crucial in this situation.
Doing business during the war
Despite the constant shelling risk, the massive destruction of buildings and equipment, and the loss of workers due to relocation, most Ukrainian firms continue operations. How do they do it?
Businesses that are more mobile have relocated to safer parts of the country, leading to bursts of regional growth. For example, three central and western Ukrainian regions which have been untouched by the war grew by more than 8% in March 2022 compared to a year before.
The IT sector, with minimal requirement of capital input, barely stopped operating. Sectors far away from the active battlefields, such as retail, almost returned to their pre-war activity level by September.
Sectors disproportionately represented in the heavy fighting regions or with high capital intensity – such as metal production – have had to scale down substantially. Metinvest, the biggest steel producer in Ukraine, lost two plants in Mariupol but continues operations at other plants near Zaporizhzhia in southern Ukraine and Kamianske in the center of the country, with the overall output reduced by 50-70%.
The grain deal negotiated in July with the help of the UN and recently extended by another 120 days has allowed partial grain exports – which has been beneficial to the agricultural economy. The export revenues may even be enough to plant for the next season. All these margins of adjustments helped the economy stabilize in early autumn.
But since the beginning of October, Russia has intensified attacks on critical infrastructure, destroying an estimated 40% of the Ukrainian power grid. As I write there is news of another Russian attack.
Vitali Klitschko, the mayor of Kiev, reports that 80% of the capital has no electricity or water supply. The government responded by rationing electricity, allowing key sectors – such as health care and public transportation – to receive enough or at least some power.
Some businesses are able to partially adjust to temporary power outages, for example dentists – who can set their visits according to the electricity rationing schedule. Similarly, some producers – such as the KMZ factory in Poltava, a manufacturer of grain handling equipment – run their production at night.
Coffee shops have switched from selling electricity-intensive espresso to simpler filter coffee. Those who can afford it stock up on electric generators.
Anticipating electricity, water and heating supply disruptions, the government prepared thousands of shelters, “points of invincibility” where Ukrainians can receive all essential services free of charge 24 hours a day, seven days a week.
While Ukrainians and Ukrainian businesses constantly adapt, Ukraine needs to repair damaged civilian infrastructure to allow people to earn a living and to save the most vulnerable Ukrainians from the consequences of extreme poverty. But it also needs to supply the military to enable it to continue fighting.
Speaking at meetings of the World Bank and IMF in October the president, Volodymyr Zelensky, announced that Ukraine required US$38 billion to cover the estimated budget deficit in 2023 and a further $17 billion to start rebuilding infrastructure that has been damaged or destroyed.
If Ukraine receives this support it should enable the country to avoid economic collapse and continue fighting.
Source: Asia Times
Chevrolet Corvette Sheds Engine, Body Parts In Nasty Looking Crash
Dubai: Gang jailed for 3 years for forcing minor girl into prostitution
Georgia official doubts Democratic plan for 2024 presidential primary
Youngkin commission calls for fighting antisemitism, indirectly criticizes Trump
Swear words in different languages lack similar sounds, study suggests
Balenciaga campaign features book by Belgian Michael Borremans who is known for depicting naked kids
‘Wednesday’: Will Tyler Return if There’s a Season 2?
How to Channel Your Rage Into a Workout So You Actually Feel Better
The 171 Absolute Best Cyber Monday Deals Right Now
69 Best Cyber Monday Fitness Deals 2022: Treadmills, Dumbbells, Yoga Mats, Nike Sneakers
Prince Harry and Meghan Markle Netflix Trailers Slammed for Using Misleading Photos and Footage￼
Ben Affleck calls out Netflix for ‘assembly line’ approach to movies
Is ‘OutDaughtered’ Still On? Fans Wonder What’s Happening With the Busby Family’s TLC Show
Amid rising numbers, Boston plans to create 11 COVID wastewater testing sites
‘Empire of Light’ Movie Review: Sam Mendes’ Drama Projects Dim Romance
Finance19 hours ago
Bitcoin Price and Ethereum Back above $17,000 and $1,300 – Time to Buy?
Politics12 hours ago
Social Security disability benefit offices reach breaking point with huge claim backlogs
Finance19 hours ago
Qatari Sheikh Hamad Al Thani Wins £4.2 Million Breach Of Contract And Negligence Case Against Art Dealer John Eskenazi
News21 hours ago
Why authorities will NOT stop magma from the world’s largest active volcano from reaching highway
Lifestyle19 hours ago
‘Mystery Road: Origin’ and ‘Elvis’ Dominate AACTA Craft Awards
Lifestyle21 hours ago
CreatorWorld Identifies Video Consumption Shifts and Industry Responses
Tech15 hours ago
DHL is buying 2,000 electric Ford E-Transits as delivery vans
Sport22 hours ago
Who is ref Clement Turpin and has he officiated at Euros before?