What is the state of the Ukrainian economy? Economy tracker with interactive graphs and comments. The most important information in plain language edited by an expert in the field of international financial law Konstantin Krypopust.
Labor market
Ukraine’s labor market is acutely aware of all the challenges of a full-scale war. The economic shock of the beginning of the Russian invasion caused both the demand and the supply of labor to fall, with businesses not hiring and people not applying for jobs. Subsequently, the demand for labor began to recover, but slowly; at the same time, the number of those willing to find a new job already in the summer of 2022 soared and exceeded the average indicators of 2021. However, later the trends diverged: the need for labor was constantly recovering along with the recovery of the economy, and the activity of job seekers was constantly decreasing – not least due to the migration of Ukrainians abroad and mobilization to the Defense Forces.
The number of new vacancies on the market remained practically unchanged during June and remained at the level of about 90% of the average level of 2021, but in the last week of the month it decreased to 81%. The activity of job seekers remains at a consistently low level, which is lower than the corresponding indicators of 2023 and 2022.
Since the beginning of the full-scale invasion, the State Statistics Service has not published data on unemployment. Research agency Info Sapiens makes own assessments of its level. According to them, in June 2024, the unemployment rate in Ukraine was 13.1%. According to this estimate, unemployment decreased for the second month in a row. A proxy for poverty — the proportion of people surveyed who are forced to skimp on food — rose sharply to 25.6% in June 2024.
Expectations of business and citizens
In June, the NBU business activity expectations index fell to 43.6 compared to 48 in May and remained below the “neutral” level of 50 points. Among businesses from all surveyed sectors, negative expectations prevail, which can be compared to the mood of the summer of 2022. Sentiment has worsened due to the deteriorating security situation, significant power outages and rising production costs. A change in business expectations is an important subjective indicator of the state of the economy, which indicates a gradual recovery of activity or, on the contrary, a worsening of the situation.
The Info Sapiens consumer sentiment index in June 2024 is 64.5 points, a significant deterioration compared to May. An index of less than 100 means that negative consumer attitudes prevail among citizens. The components of the Consumer Sentiment Index are the Economic Expectations Index (73.6 in June) and the Current Situation Index (50.9 in June). Consumer sentiment is at an all-out war low.
Foreign financial assistance
Since the beginning of the full-scale invasion, all of Ukraine’s own state budget revenues have been used to finance defense; such expenses occupy approximately half of the budget. Ukraine finances all civilian expenditures of the state budget at the expense of foreign financial aid — in 2024, the need for such external financing is $38 billion.
In June, foreign financial aid increased after falling in May: Ukraine received $2 billion in loans from the European Union (1.9 billion euros) and $3 million from the World Bank.
In June, foreign aid covered about 37% of the financing needs of the state budget. While this is an improvement over May (when foreign aid covered only 0.4% of needs), the situation is still far from ideal. In addition, the payments of the American budgetary aid have not yet started.
Fiscal policy
Tax revenues to the state budget in June amounted to UAH 104.6 billion. For the first half of 2024, tax revenues amounted to UAH 739.4 billion (+50% compared to the first half of 2023). The biggest driver of growth in absolute terms is corporate income tax (+ UAH 79.7 billion, or 117% growth compared to the first half of 2023).
Revenues from domestic VAT in the first half of 2024 increased by 49%, and from VAT on imports – by 39%. It is worth noting that while gross domestic VAT receipts increased by 26%, VAT refunds decreased by 2.5%, indicating a tighter VAT administration. Revenues from excise taxes increased by 81%, providing an additional UAH 40.8 billion in the first half of 2024.
Subsoil rent was the only source of income, which decreased in 2024 by 21% compared to the first half of 2023.
The main factors of income growth were the increase in income tax for banks, the cancellation of temporary tax benefits in 2023, the increase in excise tax rates, the transfer of the “military” personal income tax to the state budget, better administration, inflation and devaluation. Since January, the budget also received UAH 64.2 billion in dividends and net profit of state-owned enterprises.
State budget expenditures in May increased by 29% to UAH 390 billion, while defense expenditures increased by 34% to UAH 206 billion. In 5 months of 2024, 51% of all expenditures were directed to defense.
Foreign trade
According to preliminary NBU data, in May 2024 the balance of goods and services was negative: $-2.8 billion. Imports of goods in May ($5.5 billion) exceeded exports of goods ($3.3 billion), and imports of services ($2.1 billion) exceeded the export of services ($1.5 billion).
Energy
The situation with the energy system remains extremely difficult due to Russian shelling of the energy infrastructure. There is no commercial export of electricity from Ukraine: Ukraine does not sell electricity abroad. At the same time, physical cross-border flows remain, as Ukraine is part of the ENTSO-E unified energy grid: electricity can go, for example, in transit from Poland to Romania through Ukrainian territory.
According to Volodymyr Zelenskyi, Russian shelling has already destroyed 9 GW of Ukrainian electricity generation capacity as of the beginning of June, which is half of the winter peak consumption. In order to partially compensate for generation losses, Ukraine is forced to import electricity – up to 1.7 GW of power in certain hours.
Metallurgy
In June, steel production remained almost at the level of the previous month (-0.4%) and amounted to 735 thousand tons. The production of cast iron and rolled steel decreased by 4% to 629,000 tons and 572,000 tons, respectively. In the first half of 2024, steel production increased by 37% to 3.87 million tons, pig iron by 22% to 3.47 million tons, and rolled products by 32% to 3.14 million tons.
In May, Ukraine exported 3.3 million tons of iron ore. This is -8% less than in the previous month, but 2.06 times more than in June 2023. In total, 15.5 million tons of ore were exported in January-May (2.3 times more than in the same period last year ) in the amount of $1.37 billion (+82%). The main importers were China, Slovakia and Poland. The share of Ukraine in the import of iron ore to the EU reached 21%.
Domestic consumption of metal products for 5 months of 2024 decreased by 4% to 1.36 million tons.
Agriculture
Grain exports in June decreased by 29% compared to the same period last year, as the sale of the previous year’s harvest was completed. Compared to June 2023, exports increased by 2%.
In the 2023/2024 marketing year, Ukraine exported 69.86 million tons of grain, oil crops and vegetable oils. Export of wheat amounted to 18.43 million tons (+9% compared to the previous year). Corn exports amounted to 29.41 million tons (+0.2%), barley – 2.48 million tons (-8.5%), soybeans – 2.98 million tons (-8.2%), rapeseed – 3. 7 million tons (+8.7%), sunflower oil – 6.54 million tons (+22.8%), soybean cake – 0.66 million tons (+12.5%), sunflower cake – 5.15 million t (+29.1%). Ukraine exported only 324,000 tons of sunflower (-86.3% y/y), which is due to the recovery of sunflower processing in Ukraine.
Monetary policy and inflation
In June 2024, inflation accelerated to 4.8% in annual terms due to the gradual exhaustion of the effect from last year’s harvest, the cross-cutting effect of the devaluation of the hryvnia and the increase in electricity prices.
In mid-June 2024, the NBU set the discount rate at 13%, motivating the easing of monetary conditions to support lending and economic recovery by favorable inflationary trends, improved expectations and progress in attracting international financing. Yields on one-year hryvnia government bonds and 3- and 12-month deposit rates continued to decline in response to the reduction in the discount rate over the past few months.
In June, international reserves decreased by 2.9% to $37.9 billion (4.9 months of import coverage) due to the NBU’s currency interventions to overcome the foreign currency deficit, stabilize the exchange rate, and make payments on foreign debt, partially compensated by international financial assistance.
In June, the hryvnia gradually devalued. The spread between the cash and official rates remained within 1.3%. The increase in demand for foreign currency was caused by high budget expenditures, increased fuel purchases, and currency liberalization in May.
Banking sector
In May, hryvnia and foreign currency deposits continued to grow, reaching or exceeding the level of the end of 2023. The growth of the population’s income contributes to the increase of bank deposits, and more than a third of them in the hryvnia equivalent provide stable balances against the background of growing competition for deposits. Ease of currency exchange rules helps to increase savings in foreign cash currency.
Corporate and retail lending continues to gradually recover in all currencies. Profitable sectors are self-financing, which increases after invasion; demand for long-term loans is low; recovering enterprises have access to subsidized loans. Some use bank loans, others rely on external or intragroup funds.
GDP
Real GDP in the first quarter of 2024 increased by 6.5% compared to the first quarter of 2023, according to the State Statistics Service of Ukraine. In the next quarters of the year, economic recovery will slow down. According to the forecast of the Ministry of Economy, this year GDP will grow by 3.5% in annual terms (NBU forecast – 3%). These forecasts correspond to the IMF’s baseline scenario. However, under the negative scenario, the IMF predicts a 1.7% drop in the Ukrainian economy in 2024.
