Ukraine’s economic development dynamics slow down in 2024

Macroeconomic indicators of the Ukrainian economy in 2024 show growth, but the positive dynamics is slowing down. Since the beginning of the second quarter of last year, the effect of economic recovery after the hardest 2022 and, as a consequence, the low base of comparison, which in 2023 provided record economic growth indicators, has been completely exhausted.

The Ministry of Economy estimates growth of the Ukrainian economy in 2024 at 3.6% y/y. The growth estimate was downgraded from 4% y/y, which was expected amid more subdued real GDP growth in the second quarter, which slowed to 2% q/q.

The future slowdown in economic growth was already visible in summer. According to the estimates of the Institute for Economic Research and Policy Consulting (IER), last August Ukrainian GDP declined (for the first time since March 2023) by 2.8% y/y. This was due to the rapid harvesting of crops in July and lower yields than in July 2023, which resulted in lower value added in the agro-industrial complex.

In addition to stabilization of the comparison base, the slowdown in growth of the Ukrainian economy in 2024 was affected by a low harvest, weaker-than-expected external demand, intensification of hostilities and intensified strikes on energy and other critical infrastructure, and tougher staff shortages.

Key factors supporting economic growth last year were the operation of the maritime corridor, which boosted exports of agribusiness and steel sector, as well as defense orders, which contributed to growth in machine building and a number of related industries. In turn, social and other payments from international aid supported consumer demand.

Analysts of non-governmental organizations expect that Ukrainian GDP in dollar terms in 2024 will be at the level of $188.8 billion, which is still 5.5% less than in 2021 ($199.8 billion).

All other things being equal, in the foreseeable future, the Ukrainian economy is not expected to experience sharp growth or sharp failure of macroeconomic indicators, which have become “normal” given the realities of the war. According to IEI estimates, Ukraine’s real GDP growth in 2025 will be about 3%. In 2025, independent experts expect Ukraine’s GDP to increase – to $199.5 billion. This will already correspond to the pre-war level, but adjusted for dollar inflation (12% for the period 2021-2024).

Foreign economic statistics showed growth, but the balance of trade flows is far from in favor of our economy. According to the NBU, in 2024, exports of goods and services grew by 9.4% y/y – to $56.1 bln, imports of goods and services increased by 3% y/y – to $91.8 bln. Exports of goods increased by 12.1% y/y to $38.9 bln. At the same time, merchandise imports also continued to grow, albeit at a lower rate – by 8.1% y/y, to $69 bln. The negative foreign trade balance decreased to $35.7 bln vs. $37.9 bln in 2023. The deficit reduction was due to services, primarily spending by Ukrainian migrants abroad. Exports and imports of goods and services are expected to grow by 7% and 3.7%, respectively, in 2025.

Estimates of business activity improved slightly towards the end of last year, after a sharp drop in June (to 43.6 points) caused by energy shortages following intensified Russian strikes on energy infrastructure. However, for the same reasons, the business activity expectations index fell from 47.2 in November to 45.9 in December last year, almost back to the level of December 2023 (45.7 p.). Thus, the current business climate assessment is moderately pessimistic, as the neutral level is 50 points. As of January-September 2024, industrial production grew by only 4.9% y/y after 5.9% y/y in 2023.

“It is obvious that Ukraine already now needs to radically change approaches to industrial policy. It is necessary to be oriented to the policy of Brussels, which actively discusses the support of basic industries, including the steel sector”, comments Stanislav Zinchenko, CEO of GMK Center.

Without a strong industrial base, Ukraine will not be able to recover after the end of the war even from the pre-war level of socio-economic development. Therefore, Ukraine needs systemic support for the basic industries (energy, machine building, steel sector, chemical industry) of the economy, which fill state and local budgets, bring foreign exchange earnings to the country, support employment and ensure economic development.