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Tuesday, February 27, 2024

War in Ukraine. Impact on the metallurgical sector, Ukraine’s GDP 2023 – forecasts

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Ukraine’s economy in 2023 may shrink by 5 percent, but on the other hand it may also record a slight increase, according to the forecasts of economists polled by Reuters. More optimistic forecasts are presented by the Ukrainian Ministry of Economy. The biggest obstacle to development may be access to a stable energy transmission. The metallurgical sector, a key pillar of the economy, is most affected.

When a year ago Russia she attacked Ukraine, shelves in the stores of one of the supermarket chains in Kiev quickly emptied as supply chains collapsed. Fresh goods became scarce and panic buying spread.

When Ukrainian troops forced the Russian army to withdraw from the capital in the spring, the retail sector and the economy as a whole rebounded. Data from the Ukrainian European Business Association – which brings together over 1,000 foreign and Ukrainian companies – shows that by the end of May 47 percent. of member firms have fully reopened and another 50% have reopened. worked with some limitations.

However, in October, Russian missile attacks began hitting power infrastructure across the country, leading to power outages over the winter. Heavy industry was particularly affected.

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Ukraine’s economy 2023 – forecasts

Reuters pointed out that Ukraine’s economy shrank by a third last year, the largest contraction since independence in 1991. Prior to the invasion of Russia, annual economic output exceeded $200 billion. What will be the condition of our eastern neighbor’s economy this year? The agency conducted a survey among seven economists. Their projections for 2023 range from a decline in gross domestic product (GDP) by 5%. to a slight increase.

The main obstacle will be access to a stable power transmission. Many companies are finding ways to deal with the war, but those that can’t run on generators alone will struggle this year, economists have pointed out. ArcelorMittal Kryvyi Rih, the largest steel mill in Ukraine, announced that its production currently accounts for about 25 percent of its total production. pre-war level.

“We see small and medium-sized enterprises adapting to electricity shortages quite quickly by buying generators, batteries and other equipment, while infrastructure damage remains moderate,” said Olena Bilan, chief economist at investment house Dragon Capital, whose forecast was the most negative of all. surveyed economists.

– If this situation continues, the fall in GDP in 2023 will not be as significant as we expect. But our forecast also predicts the end of the hot phase of the war at the end of the third quarter of 2023, Bilan said. She did not elaborate on what Dragon Capital’s forecasts of warfare were based on.

The central bank of Ukraine predicts that GDP will grow by 0.3 percent this year, while the economy ministry forecasts an increase of 3.2 percent.

Military spending soars

Already last summer, Ukrainian politicians began to speak with greater confidence about the domestic economy, in particular after the conclusion of the grain export deal brokered by UN. This made it possible to save Ukrainian agriculture, which before the war was responsible for about 12 percent of the country’s agricultural production. GDP and about 40 percent. of all exports.

Since mid-February, grain exports from Ukraine for the 2022-2023 season – which lasts from July to June – have fallen by 29.3 percent. year on year to 29.7 million tons.

According to Vitaly Wawryszczuk from the investment house ICU impulse, the economy was also stimulated by a huge increase in military spending, including wages. In 2022, Ukraine spent 1.5 trillion hryvnias, or the equivalent of $40.6 billion, on the defense sector – equivalent to about a third of its economic output, according to data from the National Security Council.

This is about five times more than the planned pre-war defense budget.

On top of that, tens of billions of dollars in foreign aid poured in, which were earmarked for both patching up budget deficitand the armament of the Ukrainian forces.

Impact on heavy industry

However, Reuters stressed that despite these positives, Ukraine is far behind what it was before the start of the war. The Russian invasion led to the destruction of schools, hospitals, ports, roads and bridges. The Kiev School of Economics in December estimated the damage to infrastructure caused by the war at $138 billion.

The poverty rate has risen and the budget deficit is expected to reach $38 billion this year as a result of falling tax revenues. The government is dependent on help from the West to cover the deficit – mostly from the US and the European Union.

According to the Minister of Finance of Ukraine, Serhiy Marchenko, the energy sector has been destroyed in 40-60 percent. The metallurgical sector, a key pillar of the economy, is among the hardest hit by the invasion. Before the war, Ukraine was 14th in the world in terms of steel production. The two leading steel producers Azovstal and MMK Illicha went bankrupt.

Those who survived are struggling with power outages. “Blackouts for companies like us are a big problem,” said Mauro Longobardo, CEO of ArcelorMittal Kryvyi Rih. The company has recently started importing electricity, which, however, generates high costs. Longobardo did not provide details of this solution.

Main photo source: Shutterstock

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