Against all odds

Four years later, Ukraine remains standing, despite more than 13,000 missile strikes and 140,000 drone attacks, mass displacement, daily blackouts, and countless other shocks that would have devastated most economies. As Figure 1 shows, after shrinking by nearly 30% in early 2022, the economy quickly began to rebound, and GDP (measured in current dollars) is now approaching prewar levels.

Ukraine’s resilience may appear miraculous to external observers, and in many ways it is. But it also reflects institutional factors and policy decisions that have allowed its economy to withstand the Russian onslaught.

For starters, Ukraine has gradually regained control of its airspace and sea lanes. Early in the war, Russia could strike deep inside the country with little resistance, while its blockade of Odesa and other Black Sea ports effectively severed Ukraine’s trade with the outside world. Over time, however, Ukraine’s defences strengthened significantly. The deployment of Patriot, IRIS-T, and SAMP/T air-defence systems, together with F-16s and Mirage fighter jets supplied by European allies, sharply reduced Russia’s ability to strike from the air. 

At sea, Ukraine developed anti-ship missiles and sea drones that pushed the Russian Navy away from its coastline and enabled the creation of a shipping corridor along the coasts of Bulgaria and Romania. As a result, seaborne trade volumes have largely returned to prewar levels, strengthening economic recovery.

Moreover, wartime outlays amounted to a massive fiscal stimulus. Defence spending rose from $6 billion in 2021 to $70 billion in 2025, which means that roughly every third hryvnia is now devoted to defence. Even with a modest fiscal multiplier, this spending surge materially supported aggregate demand and prevented a deeper contraction.

Meanwhile, international economic aid has played a pivotal role in stabilising economic imbalances. Following the 2022 invasion, government spending surged while output collapsed, pushing fiscal deficits to 25% of GDP. With no access to international capital markets and only shallow domestic financial markets, Ukraine had little choice but to rely on bilateral and multilateral loans and grants.

Since 2022, Ukraine has received approximately $40 billion in annual budgetary support. This assistance not only financed the fiscal deficit but also helped cover a current account deficit of roughly 10% of GDP, reflecting energy and military imports and constrained export capacity. Other forms of international support have been equally critical. Integration into the European Union’s electricity grid, for example, has helped to prevent a nationwide blackout.

At the same time, the National Bank of Ukraine (NBU) has played a crucial role in preserving macroeconomic stability. Immediately after the Russian invasion, it provided liquidity, temporarily fixed the exchange rate, imposed capital controls, and introduced emergency backstops to contain panic.

Consequently, despite extraordinary stress, there were no systemic bank runs or currency collapse. After 2022, when international aid was limited and inflation climbed to 25%, the NBU refrained from directly financing the government. As conditions stabilised, it eased restrictions, allowing the economy to adjust.

That adjustment was facilitated by Ukraine’s reliance on market mechanisms, rather than government direction, to allocate resources. Even amid Europe’s most destructive conflict since World War II, Ukraine has not resorted to rationing food or medical supplies.

This approach can be traced to early experience. In the first months of the war, the government imposed price controls for petrol, which quickly led to shortages and long lines at filling stations. Once those controls were lifted, higher prices encouraged imports and logistical innovation. Remarkably, despite the destruction of all major domestic oil refineries, Ukraine avoided prolonged fuel shortages even during its most difficult periods.

Likewise, businesses and households showed extraordinary adaptability. Many firms installed private generators to continue operations during power outages, while farmers used their own equipment to demine fields and maintain production near the front lines. Some industrial plants relocated to western regions or moved some production underground to withstand drone attacks. More broadly, economic activity shifted towards less exposed sectors including agribusiness and IT.

Above all, Ukraine’s resilience rests on a shared understanding that an existential war demands sacrifices. Defeat would mean a genocidal occupation, while victory — interpreted variously as preserving sovereignty or restoring the country’s 1991 borders — offers the prospect of EU accession and long-term prosperity.

To be sure, Ukraine’s economy faces enormous challenges. Recent Russian attacks on energy infrastructure have dramatically reduced the country’s capacity to generate electricity, from over 40 gigawatts before the war to roughly 12 gigawatts today. This has left the system vulnerable during an unusually cold winter, with thousands of high-rise buildings in Kyiv and other cities experiencing extended periods without water, heat, and power.

At the same time, businesses report severe labor shortages. As the gap between actual and potential output in Figure 1 suggests, the economy is operating near capacity, limiting the scope for rapid wartime growth. The policy focus must therefore shift toward expanding supply and raising productivity within existing constraints.

Compounding the strain, foreign aid remains unpredictable and insufficient. The Trump administration halted all economic support to Ukraine, and the EU’s recently approved €90 billion loan package is not enough to compensate for the loss of American assistance.

Ukraine’s air-defence systems also remain heavily dependent on US equipment and European financing. As Ukrainian President Volodymyr Zelensky noted, repelling Russia’s massive 20 January attack on Kyiv alone required €80 million worth of missiles.

Even so, Ukraine’s economy has demonstrated a remarkable capacity to adapt. As long as foreign aid continues to flow, the country will be able to sustain the war effort, giving it a crucial edge in what has become a prolonged and grueling war of attrition.

This article was first published by Project Syndicate. Views expressed in opinion pieces do not necessarily reflect the position of Novaya Gazeta Europe.