[By Guancha Network columnist Anton Nilman, translated by Kaihuan Xue]
Recently, Ukraine's economy has shown worrying development trends, with clear signs of a slowdown in economic growth, particularly from the fourth quarter of 2023 to 2024, when economic activity significantly weakened. Ukraine may face a severe social crisis by the end of 2025.
Industries that once supported the economy, such as agriculture and information technology, are now in deep recession. Ukraine's tax burden continues to rise, and public finances are in a catastrophic state. For many Ukrainians, the real threat is not just unemployment but also the inability to provide basic necessities for their families.
In the context of ongoing economic decline, the crisis will only worsen. If conditions do not improve, by the end of this year, Ukraine will be on the brink of a major social crisis, with authorities facing another wave of emigration and growing domestic dissatisfaction.
An Exhausted Economy
According to data from the National Bank of Ukraine, last year’s economic growth was slower than expected: it grew by only 2.9% instead of the anticipated 4%. The National Bank attributed the slowdown to deteriorating security conditions, electricity shortages, and low grain yields. In the fourth quarter of last year, due to a significant drop in agricultural output (a 30.3% decrease compared to the previous year), Ukraine's GDP fell by 0.1%.
This year began with an increasingly negative trend in Ukraine's economy. From January to February 2025, Ukraine's GDP grew by only 1.1%, less than one-third of the same period last year. Meanwhile, Ukraine's inflation rate continued to rise. The latest inflation report from the National Bank of Ukraine showed that the CPI index had risen to 13.4% in February. The high CPI was mainly due to low grain yields caused by drought and high production costs (related to wage increases and rising energy prices), leading to significant price hikes for unprocessed and processed food. The situation in certain agricultural product sectors has become very serious; at the end of last year, several large oilseed processing plants in Ukraine shut down due to raw material shortages.
The authorities have yet to release March 2025 CPI data, but it is certain that prices continue to rise. Particularly, egg prices are expected to increase further, while bread and vegetable prices are also rising. Producer price inflation (i.e., factory prices, which ultimately reflect on consumer markets) set records, with a year-on-year growth of 37% in March 2025. This is due to a 65% increase in electricity and natural gas prices, along with higher transportation fees.
"This could lead to further CPI increases due to secondary effects," the National Bank of Ukraine predicted in its report. Therefore, Ukraine's inflation is far from over, and actual economic growth rates may slow down further.
The National Bank of Ukraine also implicitly admitted the weakness of economic growth in its report: "GDP has approached its potential level in 2024. In the foreseeable future, capacity growth will remain close to zero, with production facilities reduced due to destruction and territorial losses."
The so-called "potential GDP" refers to full utilization of production facilities and employment. Therefore, the statements by the National Bank of Ukraine that "GDP has approached its potential level" and "capacity growth will remain close to zero" actually suggest that Ukraine has exhausted its growth potential.
From 2022 to 2024, Ukraine's GDP compared to pre-war levels in 2021 dropped by 22%. According to recent predictions by the International Monetary Fund (IMF), Ukraine's economy will grow by only 2-3% this year, and the growth rate will fall by 0.8% in 2026. The IMF attributes the adverse factors to labor market constraints, damage to energy infrastructure, and the ongoing war, among others.
Inflation has caused skyrocketing prices. A resident of Kyiv interviewed said that supermarket goods were more expensive than in some European countries (such as the Czech Republic). Under the influence of inflation, the Ukrainian currency has depreciated, and public service fees such as utilities have continued to rise. Since January 1, 2025, under the dual impact of tax increases and rising prices, the living pressure on Ukrainian people has continued to increase, with socioeconomic activities nearing stagnation and tax revenue sharply decreasing. Despite international aid, the economy finds it hard to benefit from assistance, and most aid funds are directed toward the war, leaving people's living needs severely neglected. Ukraine's inflation problem has seriously affected people's lives, making the economic situation increasingly difficult.
I saw in a Kyiv supermarket that the price of a box of eggs had increased by about 20% compared to before (the "before" I refer to is November-December 2024, when the price of eggs was approximately 65-75 hryvnias). On the other side of the shelf, the price of sunflower oil had more than doubled compared to before the conflict. A friend told me, "Six months ago, a loaf of rye bread cost 12 hryvnias, now it’s up to 22 hryvnias, and my salary has only increased by 500 hryvnias."
Egg prices in a Kyiv supermarket. Author's photo.
Egg price increases can very well reflect Ukraine's overall price situation because egg prices are highly sensitive to fluctuations in various commodity prices. The main reason for the current round of egg price increases in Ukraine is the rise in poultry feed costs and a decrease in the survival rate of laying hens. Seventy percent of the cost of eggs comes from feed costs, with Ukrainian poultry feed being primarily corn-based. Once the price of corn rises, the prices of eggs and chicken will immediately be affected, followed by egg prices. This is a chain reaction of price increases. Ukrainian society is currently in the explosive phase of this price increase chain.
In fact, the feelings of Ukrainians towards rising prices far exceed the inflation figures released by the authorities: meat, milk, and vegetable prices are expected to rise another 10%-15% before winter, dairy products may rise in tandem with meat and vegetables due to soaring electricity costs, and bread prices continue to climb under the dual pressures of energy and labor shortages.
Economic Sector Decline
The root cause of Ukraine's economic downturn lies in the lack of follow-up momentum in key economic sectors, ultimately leading to a slowdown in GDP growth.
Firstly, Ukraine's agriculture, which once created important foreign exchange income for the country, has begun to enter a deep recession. According to the latest statistics from the Ministry of Agricultural Policy of Ukraine, the total grain production in the previous agricultural season was 55 million tons, a 12% decrease from the previous season. Affected by production contraction and logistics disruptions, the export value of agricultural products in 2023 recorded $20.5 billion, a year-on-year decrease of 18%.
The market is paying attention to the EU's upcoming determination of agricultural export quotas and trade preference adjustment plans in June this year. Considering the demands of some EU member states (such as Poland), the new agreement may not continue to provide Ukraine with relaxed access conditions for agricultural products. Although agricultural practitioners hope that agricultural production will recover in 2025, global trade environment uncertainties continue to affect Ukraine's agricultural exports. Against the backdrop of escalating trade frictions among major economies and increasing risks of recession, Ukraine's bulk agricultural export prices may be the first to bear downward pressure.
Ukraine's industrial system has also encountered serious problems, including labor shortages, investment shrinkage, rising operating costs, and weak market demand. The social and economic chain reactions triggered by large-scale military mobilization are exacerbating the economic downturn. Current mobilization policies have led many eligible workers to choose to leave their jobs to avoid risks or transfer to informal economic sectors, directly suppressing household consumption expenditures.
Some economic experts advocate granting a six-month exemption from full mobilization for enterprises with employee sizes of 50-60 people, gradually implementing health checks and conscription procedures over the next six months, and reducing the exemption ratio in stages from 100% to 50%. However, the reality is that the current scale of mobilization has long exceeded the actual needs of the Ukrainian army, with a large number of eligible individuals forced into the underground economy, resulting in severe shrinkage in both production and consumption sides.
For example, the construction industry once contributed significantly to Ukraine's GDP growth, but during the war, the construction industry in Ukraine could no longer replicate its former glory. In 2022, Ukraine's construction market shrank by 65%, and in 2023, it slightly increased by 25%, but compared to before the war, it still decreased by 56%. In 2024, Ukraine's building product index grew by only 16% (down 49% compared to 2021).
In January-February 2025, Ukraine launched only about 380 new engineering projects nationwide, less than half of the same period last year. The main issues are two-fold: extremely low housing demand (only some projects hosted by local authorities are still undergoing procurement), and a lack of operational funds and severe shortage of manpower in companies. At the same time, due to rising material prices and wages, new home prices are also rising.
It should be noted that in the past few months, influenced by Trump, rumors of "imminent ceasefire" have spread widely in society, leading to a slight recovery in the real estate market. However, if the war persists, another downturn will come.
The metallurgical industry is also facing difficulties. This industry is one of the main sources of foreign exchange income for Ukraine. Due to the advance of Russian forces, the only coal mine in Ukraine capable of producing coking coal, the Pokrovsk Coal Mine, has ceased operations. In addition to the direct negative impact of the coal mine shutdown on industrial production, it also means that the metallurgical industry will soon face a shortage of coke supply.
In addition, the iron ore industry may encounter problems. Taking the Poltava Mining Enterprise (PGO) in Ukraine as an example, the cost of mining each ton of pelletized ore with 65% iron content is approximately $76. Currently, the selling price of this type of pelletized ore is $116 per ton, with a premium of about $10 over standard iron ore with 62% iron content. However, after cost calculations, PGO's production incurs a railway transportation fee of $5 per ton, port handling fees of $5 per ton, and current war-related increased maritime freight costs of $30 per ton (pre-war costs were $20), making the comprehensive cost almost equal to the current selling price of the pelletized ore.
PGO's only potential profit margin exists in the fluctuation expectation of maritime freight costs. If a sustained ceasefire between Russia and Ukraine can be achieved in the future, restoring maritime freight costs to the pre-war level of $20, PGO can gain a $10 profit margin. However, even under this ideal scenario, if the standard iron ore price drops as expected to $85, the corresponding pelletized ore price will synchronously fall to the $92-$93 range. In that case, even if maritime costs decrease, PGO will still face an operational loss of $3.5-$4.5 per ton.
Therefore, Ukraine's iron ore industry faces systemic risks in the medium term, with its operations depending on external factors: including the rhythm of capacity release of the Simandou project in Guinea, the evolution of China's steel demand, and the degree of improvement in Black Sea shipping conditions. Under the dual influence of current geopolitical situations and commodity cycles, the operation of Ukraine's mining enterprises will continue to face pressure.
What Ukraine's economy faces is not just cyclical fluctuations but a series of problems under a war state. The problems in key economic sectors stem from the concentrated outbreak of imbalanced production factors, disrupted international supply chains, and insufficient internal development momentum in Ukraine. These difficult-to-solve problems will continue to bring great difficulties to Ukraine's economic recovery process.
Trucks transporting ore from a mine in central Ukraine
Inflationary Stagnation Dilemma and Its Roots
Ukraine is already in a state of "stagflation," the most dangerous state for a country's economy, characterized by economic recession and high inflation coexisting. There are many causes for Ukraine's economic problems, with the primary factor being that the 2023 recovery growth mainly relied on special conditions: in September 2022, Ukrainian forces recaptured parts of Kherson and Kharkiv regions, and Russia withdrew from large areas of Kiev, Sumy, and Chernihiv regions. Enterprises in these areas quickly resumed operations, and agricultural production also recovered.
Moreover, after a round of warfare, Ukrainian businesses have adapted somewhat to wartime conditions. In 2023, Russian forces rarely bombed Ukraine's infrastructure on a large scale as they did at the end of 2022, so Ukraine's economy indeed experienced recovery and rapid growth at that time.
However, in 2024, Ukraine's repeated "counteroffensives" all failed, and the authorities did not reclaim any territory. The relatively high economic growth rate based on the low base of 2022 cannot be replicated again. Secondary factors include the worsening front-line situation, frequent large-scale bombings of energy and other industrial infrastructure, the loss of large tracts of territory in Donetsk, and the advance of Russian forces there, forcing many industrial and agricultural infrastructures to stop running, such as the Pokrovsk Coal Mine being forced to shut down due to the proximity of the frontline.
There are also other reasons: reduced grain yields due to drought, the decline of the construction industry due to low housing demand, labor shortages (due to intensified conscription efforts, many men either stay home without working or try to escape Ukraine), leading to a severe situation in the labor market supply, etc.
The difficulty in addressing Ukraine's stagflation lies in the inherent contradictions of policy tools. Traditional solutions require massive injections of investment, but under a war situation, private investments are nearly frozen. Fiscal stimulus is constrained by a budget deficit accounting for 20% of GDP. Monetary easing channels are also restricted because issuing more currency may exacerbate the already double-digit inflation pressure, creating an awkward situation of "policy ineffectiveness."
The future direction of Ukraine's economy depends on two main factors: first, how long the war will last and how the front-line situation will develop. Second, the global economy has entered a "major upheaval" period after Trump wielded the tariff cudgel. This will undoubtedly also affect Ukraine. If the global trade and economic market really falls into recession, then Ukraine's largest economic pillar—demand and prices for export goods (especially raw materials)—will also be impacted. If countries start imposing retaliatory tariffs on the U.S., there is still some hope for Ukrainian agricultural products (especially corn) to replace American products in these markets.
However, the risks brought by geopolitics cannot be ignored. Deepening divisions between the U.S. and Europe will lead to exacerbated economic problems in the EU, which will greatly affect Ukraine's economic stability (the EU is Ukraine's main funding source for budgets and primary sales market for goods). If the current upheavals eventually lead to the collapse of the global trade and economic market, and the world market splits into regional markets isolated by tariff trade barriers, then whether Ukraine can integrate into one of these markets and the extent of integration will determine its fate.
The root cause of Ukraine's economic vulnerability lies in the叠加effect of prolonged war and inherent defects. Even if external aid temporarily postpones fiscal collapse, currency devaluation, uncontrolled inflation, population loss, and energy dependence will continue to erode Ukraine's economic foundation. If the conflict cannot end in 2025 (as pessimistically predicted by the IMF), Ukraine may fall into deeper recession, and the recovery cycle will extend beyond ten years.
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