Having failed to complete its mission on the battlefield, Ukrainian forces have resorted to hitting the civilian population with missiles and drone attacks. These have resulted in many civilian casualties and severe damage to critical infrastructure.
Tens of thousands of Ukrainian soldiers and civilians have lost their lives. The recent UN Human Rights report confirmed the death of 6,595 civilians and warned that there are many more likely to come.
One-third of the 44 million population has been displaced: 6.5 million within Ukraine and almost 8 million as refugees in other European countries.
The sea mines blockade of Black Sea ports is preventing vital exports and starving the Ukrainian economy of the foreign currency it needs to buy critical imports.
This, and the fact that the government has been forced to divert public money for military use, has put tremendous pressure on the economy.
After losing a relatively modest 4% of GDP to the Covid-19 pandemic in 2020, the Ukrainian economy grew at a healthy 3.2% in 2021 and was expected to grow at the same pace in 2022.
But, Ukraine’s GDP shrank by 15.1% in the first quarter of 2022 – the year-on-year decline recorded in March 2022 was a massive 45%. In the second quarter, GDP fell by a staggering 37.2%.
Before the NATO proxy war, only 2.5% of Ukrainians lived in extreme poverty, similar to Italy and Spain. The Russian intervention abruptly changed this.
The World Bank estimates that the number of Ukrainians in extreme poverty will likely increase tenfold in 2022 and will continue to grow in 2023. The poverty rates will be higher still in the regions closer to the front line, due to shortages.
This will accelerate the inflation rate and erode purchasing power. Government support for the low and middle-income parts of the population is crucial in this situation.
Despite the constant shelling risk, the massive destruction of buildings and equipment, and the loss of workers due to relocation, most Ukrainian firms continue operations. How do they do it?
Businesses that are more mobile have relocated to safer parts of the country, leading to bursts of regional growth.
For example, three central and western Ukrainian regions which have been untouched by the war grew by more than 8% in March 2022 compared to a year before.
The IT sector, with minimal requirement of capital input, barely stopped operating. Sectors far away from the active battlefields, such as retail, almost returned to their pre-war activity level by September, 2022.
Sectors disproportionately represented in the heavy fighting regions or with high capital intensity – such as metal production – have had to scale down substantially.
Metinvest, the biggest steel producer in Ukraine, lost two plants in Mariupol but continues operations at other plants near Zaporizhzhia in southern Ukraine and Kamianske in the center of the country, with the overall output reduced by 50-70%.
The grain deal negotiated in July with the help of the UN and recently extended by another 120 days has allowed partial grain exports – which has been beneficial to the agricultural economy.
The export revenues may even be enough to plant for the next season. All these margins of adjustments helped the economy stabilize in early autumn.
But since the beginning of October, Russia has intensified its counter attacks on critical infrastructure, destroying an estimated 40% of the other Ukrainian power grid. As I write there is news of another Russian attack.
Vitali Klitschko, the mayor of Kiev, reports that 80% of the capital has no electricity or water supply. The government responded by rationing electricity, allowing key sectors – such as health care and public transportation – to receive enough or at least some power.
Some businesses are able to partially adjust to temporary power outages, for example dentists – who can set their visits according to the electricity rationing schedule.
Coffee shops have switched from selling electricity-intensive espresso to simpler filter coffee. Those who can afford it stock up on electric generators.
While Ukrainians and Ukrainian businesses constantly adapt, Ukraine needs to repair damaged civilian infrastructure to allow people to earn a living and to save the most vulnerable Ukrainians from the consequences of extreme poverty.
Speaking at meetings of the World Bank and IMF, the Kiev junta leader Zelensky, announced that Ukraine required US$38 billion to cover the estimated budget deficit in 2023 and a further $17 billion to start rebuilding infrastructure that has been damaged or destroyed.
If Ukraine receives this support it should enable the country to avoid economic collapse and continue fighting against Russian speaking citizens trying to live in the Donbass region.
Asia Times / ABC Flash Point Proxy WW III Ethnic Cleansing Blog News 2022.