Despite Russia’s brutal invasion, Ukraine’s economy forges ahead.

There may be stalemate on the battlefield, but on the economic front, Ukraine is advancing. More than three years into Russia’s invasion, the country’s economy has demonstrated remarkable resilience, growing by 2.9 per cent in 2024—a figure that would be impressive even in peacetime.

According to the latest economic survey of Ukraine’s economy, carried out by the Organisation for Economic Co-operation and Development (OECD), growth is expected to continue at 2.5 per cent in 2025 and two per cent in 2026, defying the conventional wisdom that war-torn economies inevitably collapse.

This economic fortitude comes despite astonishing wartime constraints: approximately one-fifth of Ukraine’s territory remains under Russian occupation, millions of citizens have been displaced, and critical infrastructure faces regular bombardment. Foreign direct investment, perhaps understandably, has plummeted by over 70 per cent since 2021.

“Ukraine’s resilience is a credit to its people and businesses, its economic management and the support of its international partners,” notes OECD Secretary-General Mathias Cormann.

“Strengthening public finances and implementing strong structural reforms that boost jobs and business investment will be key to a sustained recovery. Once the security situation improves, Ukraine has great potential to achieve a reconstruction that lifts the incomes and well-being of its people towards convergence with OECD countries.”

The price of sovereignty

The economic picture is not without blemishes. Inflation remains a persistent challenge, projected at 13.2 per cent this year before moderating to 7.1 per cent in 2026—still well above the Ukrainian National Bank’s five per cent target. The central bank faces the delicate task of taming inflation without stifling the fragile growth.

More concerning is the fiscal situation. Defending against Europe’s largest land invasion since World War II comes at an astronomical cost—defence spending consumes 25 per cent of GDP, pushing the budget deficit to approximately 20 per cent of GDP.

Public debt, a modest 49 per cent of GDP before the invasion, is projected to reach 116 per cent by 2026, raising questions about long-term sustainability.

Yet even these figures reflect a certain triumph. Many analysts predicted complete economic collapse in February 2022. Instead, Ukraine has maintained macro-financial stability while fighting an existential war—an achievement perhaps unmatched in modern economic history.

Reinventing Ukraine under fire

What makes Ukraine’s case particularly intriguing is how the war has accelerated rather than halted its economic modernisation. Out of necessity, the country has fast-tracked digital transformation that might otherwise have taken a decade. The Diia e-governance platform—allowing Ukrainians to access virtually all government services via smartphone—has become among the world’s most comprehensive.

The banking sector, which collapsed during past crises, has shown surprising resilience. PrivatBank, nationalised in 2016 amid a massive fraud scandal, is now profitable and continues operations even in frontline areas. The National Bank of Ukraine has maintained a functioning payment system despite cyber attacks and physical destruction of infrastructure.

Ukraine’s IT sector has emerged as an unexpected bright spot. Despite blackouts and air raids, the industry grew exports by eight per cent in 2023 to 7.3 billion US dollars. Ukrainian programmers, some working from bomb shelters or relocated to safer regions, have maintained service to global clients. The sector now accounts for nearly four per cent of GDP—up from 3.3 per cent before the invasion.

This wartime reinvention extends to energy infrastructure. After Russian attacks destroyed approximately 50 per cent of Ukraine’s power generation capacity, the country has accelerated the deployment of distributed energy solutions. Small-scale solar installations increased threefold in 2023, with many businesses investing in generators and battery systems to maintain operations during outages.

Labour pains and gains

War creates peculiar economic distortions. Mobilisation and displacement have created severe labour shortages, with the OECD highlighting this as a significant constraint on growth. Historically male-dominated sectors like construction and transportation face particular challenges.

The survey recommends reducing restrictions on female employment—such as those barring women with young children from shift work—to boost labour participation.

Yet these shortages have produced one beneficial effect: rising wages. Real wages grew by approximately 12 per cent in 2023, helping to maintain domestic consumption. This wage growth provides a crucial buffer against inflation, though it creates competitiveness challenges for exporters.

The reconstruction prize

Ukraine’s economic managers are increasingly focused not merely on survival but on positioning the country for post-war recovery. The eventual reconstruction, estimated to cost upwards of 400 billion US dollars, represents both an enormous challenge and a historic opportunity to rebuild better.

The OECD advises a reform agenda focused on simplifying regulatory frameworks, promoting competition, improving access to finance, and strengthening corporate governance. Tax administration reform through greater digitalisation could expand the revenue base while reducing compliance burdens that push businesses into the informal economy.

Corruption remains a concern for potential investors, though Ukraine has made significant progress according to a companion OECD Integrity and Anti-Corruption Review. The report notes that, “Ukraine has demonstrated a strong commitment to public and business integrity, with many elements of its anti-corruption framework now measuring up to those of OECD countries.”

Grounds for cautious optimism

Ukraine’s economic resilience reflects more than just international financial support—though that remains crucial. It demonstrates institutional capacity and entrepreneurial adaptability that bode well for long-term recovery prospects.

However, significant risks remain. The security situation could deteriorate. Western support could waver. The refugee crisis—with approximately six million Ukrainians abroad—could become permanent emigration, exacerbating demographic challenges.

Yet for now, Ukraine’s economy continues to defy gravity. Even amid existential threat, reforms continue and growth persists. The country that has surprised military analysts with its battlefield resilience is surprising economists with its economic endurance.

Whether this resilience can be maintained through a prolonged conflict remains an open question, but Ukraine has already rewritten the economic playbook of wartime survival.

Photo: Dreamstime.