Farmers in bulletproof vests were milking cows: but Ukraine wins the economic war - The Economist

In the first six weeks of a full -scale invasion of a column of Russian equipment stood near the road near the agricultural complex of farmer from Pryluk Mikhail Travetsky. The Economist writes about it. His farm was in the gray zone. The locals fought, and he had to milk his cows in a bulletproof vest with a machine gun. The company was constantly adapting to new difficulties.

When Russia fired at the Ukrainian energy system for the first time, refrigeration units and special milk processing machines did not operate. The farmer had to change the direction of activity - to produce dairy products, long -term cheeses, such as feta. But when wealthy families left, he reduced prices and began to supply products to retirees. The Ukrainian economy has mostly adapted to new military realities, although it has declined by a quarter compared to 2021.

But for the first time since 2022, when a full -scale invasion began, it has a healthier appearance to some extent than the enemy economy, the publication notes. According to the Ukrainian Central Bank, GDP in 2024 should increase by 4% and 4. 3% in 2025. The national currency remains stable, interest rates are 13. 5%, at the lowest level for 30 months. For comparison, the Russian Federation will soon reach 23%to stop the fall of the ruble.

The position of banks looks brittle and GDP is expected to increase only 0. 5-1. 5% in 2025. But Ukraine faces strong counter -winds: exacerbation on the front, reduction of internal resources and Donald Trump. The economic history of Ukraine has been divided into three stages since 2022. In the first there were heavy fights, the country was hastily trying to extinguish these cells. They introduced martial law, 14 million people left their homes.

Russia blocked the Black Sea ports, blocking Ukraine's exports. The actions of the central bank were subordinate to military purposes. In the first half of 2022, he closed half of the state deficit, introduced strict control over the movement of capital and filled banks with liquid assets. Inflation increased sharply and GDP decreased by a third. In the second stage, Ukraine reflected Russia's offensive in the south in mid -2022. GDP stabilized. The grain agreement made it possible to export the sea.

The central bank returned to the fight against inflation. At the beginning of 2023, Ukraine signed an agreement with the IMF. As the assistance is received, the foreign exchange reserves have recovered. Capital control weakened. The return of macroeconomic stability allowed the government and companies to protect their operations from war. One of the priorities was the protection of production assets from Russian missiles. Industrial parks were built in the safer western regions.

Expatriates also received income from abroad: last year, every tenth company in Poland was created by Ukrainian. Another task was to redistribute resources to military needs in the conditions of a prolonged war. Government expenditures have increased more than twice and now make up two -thirds of GDP compared to 41% of 2021; Almost 30% of GDP accounts for defense and safety. Some state -owned companies have carried out capital reorganization.

In 2023, Naftogaz created a Supervisory Board, which included independent directors from major European organizations. In 2022, the company suffered losses of 79 billion hryvnias ($ 2. 4 billion), but in the first half of 2024 she made a profit of UAH 24 billion due to an increase in gas production and investment in green energy. Private companies also changed their policies.

Thus, after the capture of Mariupol Russian troops, entrepreneur Vitaliy Lopushansky created Uadamage-AI-company, analyzing satellite images for the construction of interactive maps, which reflect all destroyed buildings, roads and bridges. Since then, he has been stacked more than 200 cities. The last step was to keep the flow of solid currency. In July 2023, Russia refused to continue the grain agreement.

Ukraine responded to the opening of its own sea corridor, ensuring its safety with the help of a marine restraint campaign, which used drones and missiles. This made it possible to restore the supply not only of grain, but also metals and minerals, the second largest export of Ukraine. These measures, along with Western assistance, did not allow Russia to deprive Ukraine of the resources and the moral spirit needed to continue the struggle.

Now the third stage begins, during which the country's economy is faced with the greatest threats: acute lack of electricity, people and money. Despite the constant repair work, the country can count on less than half of the 36 gigawatts (GW) of generative facilities that were available before the war. But Ukraine is now more prepared for such shocks. In December, the ability to import electricity from the EU was increased by almost a quarter, up to 2. 1 GW.

Many food producers are made from the waste used on the spot. Many farmers also have diesel generators. Medium -sized enterprises often have gas installations that are sometimes combined with wind and solar energy. Industrial enterprises supplement all this with imports to avoid catastrophic shutdowns.

Strategies for overcoming and ongoing repairs will keep the average electricity shortage in the country up to 6% of the total demand of 2025 and up to 3% of 2026, said Andrey Pishny, Chairman of the National Bank of Ukraine. Large consumers complain about a repeated increase in electricity prices since the beginning of the war, even when there is no shortage.

Timothy Milovanov from the Kiev School of Economics believes that electricity problems can reduce GDP growth by one percentage of next year. The second problem - and the most acute - is a lack of labor. Since 2022, mobilization, migration and war have led to a reduction in labor by more than one fifth, up to 13 million people. Demand is high: the number of vacancies reached 65,000 per week, compared to 7000 in the first weeks of the war, but on average, only 1.

3 applications are filed for vacancy, compared to two in 2021. Wages are increasing. Ministries of Economics and Defense drag the rope through mobilization: where to find the right balance for the future of the country. The civil leadership of Ukraine still rejected the maximalist demands of military leaders to the detriment of the front line. There are no simple solutions. Now even industries that are considered critical can protect only half of their employees from getting into the front.

It is difficult to hire more women: almost as many of them migrated abroad, how many men were on the front or returned from it incapable of working, said Gleb Vyshlinsky from the center of economic strategy. "There is not enough money - the third problem. It is difficult for small farms and firms to finance their activities. Financing long -term capital expenditures is almost impossible. A sharp increase in business costs has hit profit," the authors of the publication say.

Mauro Longobardo, a head of the local branch of ArcelorMittal, says that since the beginning of the war he spent $ 1 billion in cash - just to maintain his capacity in working order. Half of its steel plants does not work. The government also spends a lot more money than it replenishes the treasury. In 2025, the budget deficit, according to forecasts, will be about 20% of GDP. In fact, almost all this shortage - $ 38 billion - will be funded from external sources.

In June, the Greater Seven countries agreed to $ 50 billion in the debt package for Ukraine, which will be repaid with frozen assets of the Russian Federation worth € 260 billion. Ukraine will probably be able to survive without US funds in 2025.

"Together with a tranche of 18 billion euros, which the EU has agreed to provide within the previous program, the contributions of other members of the Great Seven will close the gap left by Uncle Sam," Dimitar Bogov explained from the European Bank for Reconstruction and Development. Ukraine also has healthy foreign exchange reserves. They are forecasting that they will increase to $ 43 billion - five months of imports - by the end of 2024.

However, if America goes, Ukraine may be in a difficult situation in 2026. Politically weak EU governments can come across difficulty in paying another big account. And Ukraine's ability to collect more at home is limited: a proposal to increase taxes by 4-5% of GDP was recalled this summer after sharp resistance. The development of events on the battlefield can cause difficulties by 2026. However, business representatives express with cautious optimism.

Farmer Travetsky says that this year he received a little profit, the first since farming. And he thinks about launching a new line of Parmesan cheese. "I have been trained and know the recipe," he says, but adds that obstacles remain scary. "Try to do it when you don't have electricity 12 hours a day. " Recall that the General Staff confirmed the lesion of the Novosakhtyn Refinery. It was also reported that the Navy named the key factors of war fracture at sea. Neptune and sea drones were mentioned.