The dynamics and changes in the structure of GDP show how the economy is adjusting and adapting to the conditions of war. Today, the Ukrainian economy is increasingly taking on the characteristics of a war economy: we have qualitative changes, which are reflected in structural shifts, and quantitative changes, which indicate the adaptation of businesses and the transition to a phase of recovery growth. The Ministry of Economy estimates GDP growth at 5% in 2023.

This was announced by Yuliia Svyrydenko, First Deputy Prime Minister and Minister of Economy of Ukraine, during an event dedicated to the review of the Ukrainian economy in 2023, organised by the Centre for Economic Strategy on 11 January.

“Compared to the pre-war year 2021, the role of the state has increased: today the public administration sector plays a leading role in our defence and security, social protection and support of business. According to the Ministry of Economy, in 9 months of 2023, the share of public administration value added in GDP increased by 15 percentage points to 21.2%, compared to 6.2% in 2021. In fact, this sector ensures security and helps the economy adapt to new conditions,” said Yuliia Svyrydenko.

In addition, the priority of the war economy is to finance investment in the defence industry and the restoration of destroyed infrastructure. Thus, compared to 2021, the share of gross fixed capital formation in GDP increased by almost 4 percentage points to 17.1%, mainly due to budget financing.

“As a result, we have an accelerated development of the machine-building complex, which is being reoriented towards the production of defence products and products necessary for the reconstruction of the destroyed infrastructure. Here, too, we are witnessing a structural shift that is powerful for the production process in a relatively short period of time. In the first nine months of 2023, the share of machine building in the structure of industrial sales increased by 1.1 percentage points to 6.8% compared to 2021,” the First Deputy Prime Minister stressed.

At the same time, the Ministry of Economy notes a change in consumption priorities, in particular a decrease in household consumption, which is typical for a war economy. During the period under review, the share of household final consumption expenditure in GDP fell by almost 2 percentage points to 66.3%. This is also a consequence of Ukrainians leaving the country, which, among other things, led to a shift in the distribution of imports of goods and services towards an increase in the share of the latter in total imports.

The armed aggression of the russian federation has also caused major losses in sectors that had been leading in the pre-war period. The steel industry, for example, is currently among the outsiders due to significant damage to enterprises, their temporary occupation and blocked logistics. In 9 months of 2023, the share of steel production in the structure of industrial sales decreased by 7.9 percentage points compared to 2021 and amounted to 9.9%.

“We see that the leaders in production are changing, with some sectors adapting more flexibly to the challenges of the war. The role of the state is to support business development and prevent the loss of existing capacity. To this end, we are working on the most acceptable logistics, trying to resolve problems with export restrictions through diplomatic means, continuing business support programmes, in particular through the 5-7-9 affordable lending programme, subsidising the creation and development of own businesses, increasing the level of localisation of production, etc.,” added Yuliia Svyrydenko.

According to the First Deputy Prime Minister, the forecasting process is carried out in real time under conditions of high uncertainty. In 2024, GDP is expected to grow by 4.6%. Investment will grow by 29.6% in 2024 compared to 2023, making the largest positive contribution to GDP growth among the components. Private consumption will come in second. A further gradual recovery of domestic production is also expected, mainly to meet the needs of investment demand. The value of exports of goods and services is expected to increase by 9.0% in 2024, while imports of goods and services are projected to grow by 5.9%.