It might seem inappropriate to speak about economic forecasts, even about short-term ones, in conditions when the opposition to Russian aggression is in its full swing. Meanwhile, there is an increasing gradual (and consistent) dominance of Ukrainian forces and, of course, there is no doubt that Ukraine will be able to defend its right to exist, its freedom and independence. Therefore, even in conditions of significant uncertainty, some estimates of key macroeconomic indicators seem appropriate to determine the level of post-war recovery needs.
Some of the forward-looking comments presented here are naturally based on the assumption that negative processes will continue to persist, which will continue to put depressive pressure on the economic environment of the country: large human losses, unprecedented emigration, significant destruction of large cities and infrastructure throughout the country, currency and price pressures, etc.
Along with this, some positive processes began to appear and even strengthen. Indeed, Ukraine has expanded and strengthened cooperation with leading developed countries, the IMF and other international financial institutions, which enabled financing a certain part of budget needs, minimising the risk of default, preventing devastation of foreign exchange reserves, and eliminating excessive energy ties with "brother countries".
Legislative easing of fiscal and administrative pressure on business proved timely. At the same time, it is appropriate to announce now that this relaxation applies not only to the period of martial law (as it has been approved), but also to another 2–3 months for the gradual adaptation of business.
About GDP. Today, a number of experts share the view that with a considerable reduction in military hostilities, the fall in GDP for this year will be about a third (compared to the previous year). It is important to remember that in the years of previous crises (much smaller in scale), GDP losses in Ukraine were also significant. Indeed, in 2009 (during the global financial crisis) the fall reached 15%, and in the two years of the first Russian aggression (2014–2015) GDP decline was about 18%. However, during that period, the country did not lose thousands of its citizens, did not face millions of emigration flows, and the destruction of the economic body of the country did not have such an extensive scale. That is why falling by a third does not seem to be something extraordinary today.
It should also be borne in mind that one of the main factors of growth and development is the labor force. Already today, more than 3 million citizens have emigrated from the country, and about 10 million have been relocated within the country. Of course, these are not final figures. Even if most of those who have lost their homes and moved to new places are women and children, this does not diminish the importance of the labor factor (which will also determine the dynamics of the economy).
On inflation and household resources. The government has introduced partial regulation of consumer prices (for some basic necessities). However, with high energy prices (which will probably be observed during the year), the effectiveness of price regulation will decrease, and will lead to the significant increase of inflation in the spring. It is also important to remember that in 2014–2015 there was also an acceleration of inflation — up to 25% in 2014 and to 43% in 2015 (also due to a significant increase in energy costs). Therefore, inflation in the current conditions, even with the continuation of significant humanitarian support, at the level of 30-40% will not be an unexpected or insurmountable shock. It should be noted that during the years of independence, Ukrainians have experienced several inflation crises and have already learned to cope even with large price shocks.
A sharp decline in real welfare (due to job losses, declining incomes and high inflation) provokes negative changes (and increases negative expectations) in terms of aggregate demand. Indeed, in 20142015, the lion's share of received resources — from both households and the public sector — was spent on consumption, whose level in 2014–2015 reached 90% of GDP for the first time in a quarter of a century. Most likely, this year the share of consumer spending in the GDP structure will for sure exceed this level.
External sector. Undoubtedly, foreign trade figures will significantly decline. It is important to keep in mind that in 2015 merchandise exports fell by almost 30% and imports by 33%. However, at that time the export potential was reduced mainly due to the occupation of part of Donbass. Today, export losses will be mainly due to the destruction of industrial potential (including metallurgical ones, which remains the basis for exports) in Kharkiv, Donetsk, Mykolayiv regions.
Another major export niche — agricultural and food products — will be reduced due to crop losses in the regions of military hostilities, as well as the necessary restrictions on grain exports to meet the domestic needs of the country and to strengthen food security. Import cuts will be due in part to the loss of markets and supplies from "brother countries", as well as to a significant reduction in aggregate demand.
Therefore, we should expect a decline in foreign trade turnover by about 40% (compared to the previous year). However, such a significant reduction means that although the trade balance (goods and services) will remain in deficit, it nevertheless will be at 1–2% of GDP, which greatly facilitates the search for resources to cover it. Moreover, the current account balance may even be positive due to significant assistance and grants from international partners, which will also contribute to macroeconomic balance.
