Exclusive Ukrainian economy in 2024 was 23% below pre-war levels

Ukraine needs new growth drivers, which can only be found in the industrial segment

Since the second quarter of 2024, the Ukrainian economy has been slowing down, as the effect of economic recovery after the hardest 2022 has been completely exhausted. We see obvious fading dynamics. After a 28.8% YoY drop in real GDP in 2022, there was a 5.5% YoY “rebound” in 2023, which turned into a modest 2.9% YoY growth in 2024 (according to the State Statistics Committee). (according to State Statistics Service of Ukraine).

Ukraine’s current level of GDP is almost entirely in line with the amount the country can produce from its existing level of capital and human resources. Although the Ministry of Economy estimated the growth of Ukrainian GDP in 2024 at 3.6%, and the NBU – at 3.4%, but the essence of the matter does not change much.

There is a similar downward trend in other important economic indicators. For example, the growth of industrial production in Ukraine slowed down to 3.6% y/y last year, while in 2023 there was a growth of 6.8% y/y. It is impossible to compare the lag of industrial production in 2024 from the pre-war 2021, because since the beginning of the war the State Statistics Committee has been publishing only industrial production indices, without disclosing volumes in physical terms.

In turn, the volume of construction work performed in Ukraine last year increased by 15.5% y/y – to 204.7 billion UAH. Growth in 2023 amounted to 25% y/y. According to GMK Center estimates, the volume of the construction market in dollar equivalent in 2024 increased by 14.6% YoY. – However, this is 45.2% lower than in pre-war 2021 ($9.3 bln).

As a consequence of Russia’s full-scale aggression, Ukraine’s industrial production index (basis – 2016) collapsed from 101.7% in December 2021 to 69.3% in December this year. The construction output index (base – 2016) similarly fell from 199.7% in December 2021 to 83.6% at the end of 2024.

The slowdown in economic growth also affects the prospects for the Ukrainian economy to return to at least the pre-war level. At the end of 2024, real GDP has recovered to 77.1% of the 2021 level. In 2025, growth is expected to slow further to 2.7% (according to the forecast of the Ministry of Economy), which will amount to 79.2% of GDP in pre-war 2021.

Constraints to accelerating economic recovery in 2025 are:

• continued active hostilities;
• unstable energy supply situation;
• increased imports of natural gas due to shelling of natural gas production infrastructure;
• increased production costs due to rising energy prices and devaluation of the hryvnia;
• labor shortage.

The economy requires an almost complete change of economic policy principles in favor of technological industries and processing of raw materials, where there are significant prospects. For example, the basis of Ukrainian exports in 2024 was predominantly raw agricultural products, which accounted for 43% of the total ($18.1 billion).

Ukraine needs new growth drivers, which can only be in the industrial sectors. A bet on industry will allow Ukraine to increase domestic production, significantly improve the potential of its own economy and increase budget revenues.

Especially since the volume of international financial aid will be reduced. In 2024, Ukraine received $41.6 bln of external support – it covered 75% of the need for additional budget financing. This year, $38.4 bln of aid is expected, but it will inexorably decline thereafter. There will be no more budgetary aid from the U.S., and if the global economy goes into recession, Europe will have problems allocating funds for Ukraine.

Further growth will require an economic strategy aimed at maximizing expansion into competitive sectors. Under such conditions, Ukraine must strengthen its own industrial potential. Without a strong industrial base, Ukraine will not be able to recover from the war even to its pre-war level of socio-economic development and be adequately prepared for EU accession.

Therefore, Ukraine needs systemic support for the basic industries (energy, machine building, iron and steel, chemical industry) of the economy, which fill the state and local budgets, bring foreign exchange earnings to the country, support employment and ensure economic development. Otherwise, our country will show minimal indicators of economic growth and complete absence of any prospects.