The economic consequences of military conflicts: The Ukrainian context

Polinkevych, Oksana Article The economic consequences of military conflicts: The Ukrainian context Economic Forum Provided in Cooperation with: Lutsk National Technical University Suggested Citation: Polinkevych, Oksana (2024) : The economic consequences of military conflicts: The Ukrainian context, Economic Forum, ISSN 2415-8224, Lutsk National Technical University, Lutsk, Ukraine, Vol. 14, Iss. 1, pp. 28-39, https://doi.org/10.62763/cb/1.2024.28 This Version is available at: https://hdl.handle.net/10419/318681 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Introduction In the context of a sustainable development economy, factors contributing to the growth and formation of socially responsible businesses are of significant importance. Military conflicts, crises, and pandemics have a detrimental impact on these processes. The military conflict in Ukraine has negative consequences not only for the country’s economy but also for the economies of neighboring states and the EU as a whole. Therefore, the problems caused by the military conflict in Ukraine and The economic consequences of military conflicts: The Ukrainian context Oksana Polinkevych* Doctor of Economic Sciences, Professor Lutsk National Technical University 43018, 75 Lvivska Str., Lutsk, Ukraine https://orcid.org/0000-0001-6924-7296 Suggested Citation: Polinkevych,O. (2024). The economic consequences of military conflicts: The Ukrainian context. Economic Forum, 14(1), 28-39. doi:10.62763/cb/1.2024.28. Copyright © The Author(s). This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0 (https://creativecommons.org/licenses/by/4.0/) *Corresponding author Abstract. Conflict, as a unique form of interaction involving the clash of interests between participants in social relations, serves as a necessary condition for the development of civilisation. Contradictions have accompanied humanity throughout its history, finding reflection in the literature, art, and history of various countries and peoples. The emergence and progression of any conflict have economic consequences, stemming from the objective confrontation between opposing forces. The modern economic landscape is increasingly characterised by deepening disparities and a shrinking gap between crises and conflicts. The purpose of this article is to identify the periods that have impacted Ukraine’s economy and to analyse the economic consequences of these periods. The author posits that the military period has had a detrimental effect on Ukraine’s economy. To achieve this goal, the research employs methods such as scientific abstraction, generalisation, synthesis, analysis, comparison, as well as graphical and tabular methods for data interpretation. This approach has allowed the identification of three main periods of conflict in Ukraine: the brewing conflict in Eastern Ukraine (2013-2014), the pandemic period (beginning in 2019), and the military period (starting in 2022). For each of these stages, the economic development processes in Ukraine were analysed. It is noted that conflicts are inherently dangerous, posing threats not only to the sovereign governance of territories but also to the economy of Ukraine and the global economy at large. Based on the analysis of Ukraine’s economic development scenarios without the state of war, the main factors that would contribute to economic recovery in the following areas were highlighted: GDP, unemployment rate, inflation rate, and the NBU’s key interest rate. The practical value of this work lies in the identification of three periods of military conflicts in Ukraine and the analysis of their key consequences. This approach helped to demonstrate that the war in Ukraine not only weakens the Ukrainian economy but also affects the economies of neighboring countries. The main economic losses for Ukraine during these conflicts include the loss of human resources and the resulting regional development disparities Keywords: enterprise; socially responsible business; crisis; losses; relocation of enterprises; social welfare ECONOMIC FORUM Journal homepage: https://e-forum.com.ua/en Vol. 14, No. 1, 2024, 28-39 Article’s History: Received: 29.08.2023 Revised: 10.11.2023 Accepted: 28.12.2023 UDC 339.977 DOI: 10.62763/cb/1.2024.28 the ongoing war are increasingly relevant and require immediate resolution, as they undermine Europe’s economic resilience. The relevance of this research is further underscored by the assertion made in J.M.Keynes(1920) study that prolonged wars impose significant costs on society and the state. The war in Ukraine can be characterised as a hybrid conflict, beginning in 2013 during the Euromaidan and escalating in 2014 during the Revolution of Dignity. Polinkevych Economic Forum, 2024, Vol. 14, No. 1 29 N. Stukalo & A. Simakhova (2018) noted that the social dimension of the military conflict in Ukraine affects European stability and the geopolitical situation, particularly in relation to Ukrainian migration. The crisis in Ukraine has generated numerous social challenges, such as loss of human lives, mass migration, rising crime rates, unemployment, and negative impacts on civil society and socialisation processes. These problems also affect European countries. That is why the EU is interested in dialogue and seeks to end the war in Ukraine. According to V. Sehn et al. (2022), the economic consequences of global catastrophes vary significantly across countries. J.Federleet al.(2022) also found that the effects of global catastrophes are not evenly distributed worldwide. V. Sehn et al. (2022) emphasise that these consequences differ substantially between countries, with geographic proximity to the country at war being a critical factor. The closer a country is geographically to Ukraine, the more pronounced the decline in its stock market around the time the war began. The author A.C.C.S.M. Esteves (2023) noted, that Russia managed to avert a financial crisis, avoid significant impacts on the real economy, and find alternative import routes, thereby minimising the effects of sanctions. He suggests that this situation can be addressed through the isolation of Russia, the enhancement of multilateral cooperation, and the more effective application of sanctions by closing loopholes and preventing circumvention. The purpose of this study was to delineate the periods of conflict situations in Ukraine, during which the economy underwent changes, and to highlight the economic consequences of these periods. The objectives of the article are achieved by addressing the following tasks: 1) differentiating between the concepts of losses and damages resulting from the war; 2) assessing the armed conflict in Ukraine in the Donbas region and the war with Russia in 2022; 3) identifying the periods of conflict escalation in Ukraine, taking into account their timing and specific characteristics. Materials and Methods To achieve the objectives of this study and address the tasks set forth, the following research methods were employed: scientific abstraction, critical analysis of literature sources, and generalisation. The method of scientific abstraction was used to identify the essence and structure of the war’s consequences, allowing for the development of a methodology to measure them. Generalisation enabled the systematisation of the collected information and the identification of three key periods in the development of Ukraine’s economy. For a more detailed analysis of the hybrid war in Donbas from 2013 to 2021, methods of comparison and analysis were applied. These methods allowed for the characterisation The research of Yu.Yurkiv(2022) allows for a generalisation that the two world wars serve as examples of “economic rails”. Germany’s defeat in First World War was driven by economic problems rather than military failure. In 1918, a resource deficit negatively impacted the economy, leading to the Revolution and the Compiègne Armistice. During Second World War, Britain, Germany, Italy, Japan, and the former USSR were heavily dependent on the supply of raw materials and finished industrial products. The wartime economy becomes focused on meeting military needs, leading to the depreciation of labour, propaganda efforts, and the mobilisation of the population for military and industrial purposes. L.Cuiet al.(2023) noted that the Russian-Ukrainian war has heightened the risk of disruptions in the global energy supply chain. The interruption of trade will significantly impact Ukraine’s economy, causing a 4.18% decline in its real GDP. However, if the United States and the European Union cease importing energy resources from Russia, the latter’s economy will suffer a devastating blow, with a maximum real GDP decline of 5.49%. The scientists D.Rawtaniet al.(2022) argue that the Russian-Ukrainian war, extreme weather events, and the COVID-19 pandemic are three catastrophic events currently confronting humanity, and that the war will exacerbate the adverse effects of extreme weather on human society. W.Boungou & A.Yatié(2022) analysed the impact of the Russian-Ukrainian war on the stock markets of 94 countries and found that the conflict negatively affected stock markets in both countries bordering Russia and Ukraine and those already affected by previous Russian aggression. I.Liadzeet al.(2022) employed the global econometric model (NiGEM) to analyse the potential impact of the Russian-Ukrainian war from various perspectives. They confirmed that the negative effects of the war will not only plunge financial markets into turmoil and cause energy and food prices to rise, but also lead to a 1% decline in global GDP and a 1-2% increase in inflation. M.A.R.Estrada & E.Koutronas(2022) condemn Russia’s invasion of Ukraine and evaluate the effectiveness of EU sanctions against Russia. These sanctions have led to reduced liquidity in Ukrainian banks, a temporary devaluation of the ruble, a decline in trade due to the suspension of operations by over 750 international companies in Russia, and a sharp decrease in production caused by shortages of raw materials and limited access to spare parts and supplies. The authors propose a model to assess the economic consequences of military aggression by analysing the impact of trade on the structure of international trade and economic development (trade suppression index and reduced investment as a result of war) and the interdependence of trade and investment (agricultural exports, industrial and manufacturing exports, service exports, and foreign direct investment flows). The economic consequences of military conflicts... Economic Forum, 2024, Vol. 14, No. 1 30 of changes in Ukraine’s key macroeconomic indicators during this period. Specifically, the study examined GDP growth rates from 2021 to 2024, the number of people who left Ukraine, and the extent of damage to civilian infrastructure. By using the data extrapolation method, a linear model of GDP growth in Ukraine for 2021-2024 was constructed, which enabled forecasts for future periods. Critical literature analysis and graphical methods were used to identify the negative economic consequences of the third military period in the development of Ukraine’s economy. The literature review involved the use of periodic sources, as presented in Table1. Table 1. Analysis of literature sources on data analytics Source Analytical data used for the study Just about the economy (based on the Inflation Report for January, 2022) (2022) Analysis of the number of IDPs who do not plan to return home Relocation program… (2022) The programme of enterprise relocation is described The World Bank estimated the financial loss of Ukraine from the Russian invasion at $60 billion (2022) Analysis of Ukraine’s financial losses incurred during the war D.Schwartz (2022) Performance of relocated companies during business relocation Yu.Melnytska (2022) Companies that have started working under the business relocation programme O.Polinkevych & R.Kamiński (2018) An effective model of corporate image of business entities Source: developed by the author The above sources present the opinions on the events in Ukraine that occurred during the war. The graphical method helped to visualise changes in economic indicators, which helped to clearly understand the extent of the war’s impact on the country’s economy. An attempt was made to cover the entire period of change, but the focus was on 2013-2022. The material for the study was collected from various sources, including official data published by the State Statistics Service of Ukraine, the Ministry of Finance of Ukraine, the National Bank of Ukraine, and the Centre for Economic Strategies. These data provided a solid basis for analysing macroeconomic indicators and the economic impact of the war. Specifically, the following sources were used: ▣ Official website of the Ministry of Finance of Ukraine(2021); ▣ Official website of the State Statistics Service of Ukraine(2024); ▣ Official website of the Centre for Economic Strategy(2024); ▣ Official website of the National Bank of Ukraine(2024). Results and Discussion The consequences of war differ significantly from those of natural disasters. They stem from the destructive and other adverse impacts on the economy, politics, and society as a whole. In other words, the consequences of war affect the socio-economic, political, scientific, technological, and other spheres of activity for individuals, society, businesses, and the state. These areas have undergone changes and have been further strained due to armed conflicts (wars). The consequences of war are measured in terms of losses and damages. Losses are a portion of the consequences that arise from negative changes in key areas of activity (Ivanov,2015). This term has a broad meaning, referring to various detrimental effects. In a narrower sense, it relates specifically to war casualties, which can be either medical or irreversible. Damage refers to the result of negative changes due to events, phenomena, or actions that compromise the integrity or degrade the properties of an object. These include (Ivanov, 2015): 1)deviation in a person’s health from the average level, which can lead to illness or even death; 2)disruption of normal business operations; 3)loss of various types of property or other values, which may be material, cultural, historical, or natural; 4)negative impact on the natural environment or residential areas of people. The most common definition of damage (harm) is the result of changes in the state of objects that compromise their integrity or deteriorate other properties, leading to actual or anticipated economic and social losses due to military events. Damages can be classified as direct, which are measured in monetary or physical terms, or indirect. Indirect damages include: ▣ disruption of the normal functioning of the country’s economic system and businesses; ▣ withdrawal of resources from circulation; ▣ reduction in the ability to meet public needs; ▣ creation of threats to the livelihood of the population. Figure 1 illustrates the relationship between the concepts of “consequences”, “losses”, and “damages”. These terms are characteristic of war. Polinkevych Economic Forum, 2024, Vol. 14, No. 1 31 Globally, there is a concerning trend of increasing frequency and severity of armed conflicts, which negatively impact economic efficiency and national security. Direct damage includes losses and harm to all sectors of the national economy within the affected area, leading to irreversible losses of fixed assets and the depletion of natural resources. Consequently, businesses face reduced profits, and the state suffers from lower tax revenues, insurance payouts, and other financial shortfalls. Damage can be categorised as social, economic, and environmental, and it can be either direct or indirect. Direct economic damage refers to losses that are documented and verifiable. Direct social damage is measured by the number of casualties, injuries, and people affected by the war, and it also has a psychological dimension, linked to the loss of public trust in the government’s ability to ensure protection and address social conflicts. Direct environmental damage involves both actual and potential losses that can be quantified and include the costs associated with mitigating the impact on humans, animals, plants, ecosystems, and natural complexes. These negative effects arise from violations of environmental quality standards due to military actions. Indirect environmental damage refers to the pollution caused by the destruction of enterprises, leading to the release of materials hazardous to public welfare. Indirect damages are the additional costs incurred to compensate for these losses. These expenses arise from disruptions and changes in economic connections and infrastructure, losses associated with mitigating negative events, and environmental losses. Global changes play a central role in indirect damage across all areas of functioning, which cannot be monetarily quantified for the current generation. Total damage is the sum of direct and indirect damage, including the costs of mitigating the consequences of war. This damage is calculated at a specific point in time and is not identical to overall damage, which is assessed quantitatively for the future. Damage can be estimated by following these steps (Ivanov,2015): ▣ determining current prices for goods, work, and services; ▣ reviewing judicial precedents; ▣ considering insurance experience (both personal and property), which has a subjective assessment basis and varied statistics. Thus, conflicts lead to economic damage and losses. A complex form of warfare is the armed conflict that began in the Donbas region in March 2014 and continues to this day. However, neither side in the conflict has officially declared a state of war. Such conflicts arise from regional struggles with governments and external players. They are dangerous as they pose a threat to sovereign control over territories. Let’s examine how the main macroeconomic indicators in Ukraine have changed since the onset of the hybrid war in Donbas and the annexation of Crimea (Fig.2). Figure 1. Correlation between consequences, losses and damages from war Source: summarised by the author according to the research S.V.Ivanov(2015) Consequences of war Economic Social and Psychological Political Ecological Losses Material Financial Informational Medical and Biological Damages Direct Indirect Social Economic Ecological Violation Abbreviation Elimination The economic consequences of military conflicts... Economic Forum, 2024, Vol. 14, No. 1 32 1466.2 1410.6 1586.9 1365.1 1988.5 1430.2 3560.6 3083.4 3978.4 3675.7 4194.1 3818.5 5459.6 4363.6 5191 3865.8 6537.8 5518.1 02000 4000 6000 8000 Nominal GDP, billion UAH Real GDP, UAH billion 2023 2022 2021 2020 2019 2018 2015 2014 2013 3282 416.50 14014 513.52 14859 459.46 17445 477.03 04000 8000 12000 16000 20000 Average monthly salary of employees, UAH Average monthly salary of employees, USD 100.5 7.88 124.9 11.9 143.3 21.84 109.8 27.2 104.1 25.85 105 26.96 110 27.29 126.6 32.34 105.1 36.57 020 40 60 80 100 120 140 160 Inflation index,% Average official exchange rate, UAH / USD 2023 2022 2021 2020 2019 2018 2015 2014 2013 2023 2022 2021 2020 2019 2018 2015 2014 2013 Figure 2. Changes in the main macroeconomic indicators in Ukraine in 2013-2023 since the beginning of the armed conflict in Donbas Source: compiled by the author based on the data Official website of the Ministry of Finance of Ukraine (2021); Official website of the State Statistics Service of Ukraine (2024) Analysis of the information in Figure2 suggests that in 2023, compared to 2013, the following indicators increased: 1)nominal GDP by 345%; 2)inflation index by 4.6%; 3)average monthly wages of workers by 14.53%; 4)exchange rate by 364%. Since the beginning of the military conflict in the East, real GDP has increased by 4107.5 billion UAH, the inflation index has risen by 4.6%, the average exchange Polinkevych Economic Forum, 2024, Vol. 14, No. 1 33 rate has grown to 28.69 UAH/USD, and the wage level has increased by USD 60. Figure3 shows the growth rates of inflation, the average official exchange rate, the average monthly salary, and real GDP. -50.00 0,00 50.00 100.00 150.00 200.00 250.00 300.00 2013 2014 2015 2018 2019 2020 2021 2022 2023 Inflation growth rate, % Growth rate of the average official exchange rate, % Average monthly salary growth rate, % Real GDP growth rate, % Figure 3. Growth rates of inflation, Official exchange rate, Real GDP, and average monthly salary in Ukraine from 2013 to 2023 since the onset of the armed conflict in Donbas, as a percentage of the previous year Source: compiled by the author based on the data Official website of the Ministry of Finance of Ukraine (2021); Official website of the State Statistics Service of Ukraine (2024) A similar trend was observed following the onset of the COVID-19 pandemic in 2023 compared to 2019: 1)the growth rate of real GDP in 2020 was 3.88%, increased to 14.28% in 2021, slowed down by 11.41% in 2022, and then surged by 42.74% in 2023; 2)the growth rate of the average exchange rate was 4.29% in 2020, 1.22% in 2021, 18.5% in 2022, and 13.08% in 2023; 3)the average monthly wage increased by 10.42% in 2020 compared to 2019, by 20.9% in 2021, by 6.03% in 2022, and by 17.4% in 2023; 4)the inflation rate began to rise sharply, with its growth rate at 0.86% in 2020 compared to 2019, 4.76% in 2021, 15.09% in 2022, and then slowed down by 16.98% in 2023. Thus, it can be concluded that prior to 2019, there was a gradual and consistent increase in real GDP and average monthly wages, a slowdown in the inflation rate, but a rise in the average exchange rate. The year 2019 resulted in a slowdown in the growth rate of real GDP to 19.21%, in average monthly wages to 18.41%, in the inflation growth rate by 5.19%, and in the average exchange rate by 4.96%. Overall, the study identifies three periods: Period 1 (2013-2014)– the build-up of conflict in Eastern Ukraine. In 2014, Ukraine faced an economic crisis that deepened and necessitated the reform of key state institutions. The war in the East and problems in Crimea hindered these reform processes. Addressing these challenges required additional resources and renewal of the labour force. The contribution of the Donetsk and Luhansk regions, as well as Crimea, was significant. These territories accounted for 13.5% of Ukraine’s total area in 2013 and contributed 18% of the country’s GDP. Their importance was further underscored by the fact that they accounted for 25% of industrial production and formed 25% of Ukraine’s exports (Ivanov,2015). Since 2014, the economic significance of Crimea in Ukraine’s GDP has not been reported by the State Statistics Service of Ukraine (Official website of the State Statistics Service of Ukraine, 2024). Donetsk region produced 5.4% of the country’s GDP in 2018, 5.15% in 2019, 4.89% in 2020, and 5.19% in 2021. Luhansk region contributed 1% to the country’s GDP from 2018 to 2021 (Official website of the State Statistics Service of Ukraine, 2024). Period 2 (from 2019)– the pandemic period began with the onset of COVID-19, which disrupted the trajectory of development at both the macro and micro levels and established new foundations for changes in society’s way of life. These changes affected communication, work, education, and more. Quarantine restrictions in most countries, including Ukraine, led to an unprecedented transformation in the behaviour of economic entities at both the consumption and production levels. Caution became the dominant principle of motivation amid ongoing uncertainty. Period 3 (from 2022)– the war period, which intensified the negative trends caused by the coronavirus pandemic and the ongoing war across Ukraine. This period saw the rapid destruction of infrastructure, driven by the relocation of businesses from the East to the West. In response, on March 17, 2022, the government developed a business relocation program (Order No.246-r…,2022). This program aims to restore the economy by providing assistance to businesses relocating from conflict zones to safer areas in Western Ukraine. Applications are reviewed within 1 to 5 days. The state offers support in selecting relocation sites, transporting and housing employees, finding new staff, providing logistical support, and identifying new markets and suppliers. At the end of March, the total amount of damage inflicted on Ukraine due to Russian aggression exceeded USD 560 billion. The majority of the losses were sustained by Ukrainian infrastructure, accounting for approximately USD 120 billion, while the losses to businesses and organisations The economic consequences of military conflicts... Economic Forum, 2024, Vol. 14, No. 1 34 amounted to an additional USD 80 billion. Ukraine launched a zero-interest loan program for businesses during the war, but the loan resources were limited to a sum of UAH 60 million. Currently, an increase in loan interest rates to 5% is anticipated once the military actions cease. A simplified taxation system was introduced for businesses with a turnover of up to UAH 10 billion, applicable to the third group of individual entrepreneurs. The only tax they are required to pay is 2% of their turnover. Additionally, during martial law in Ukraine, business inspections by regulatory authorities have been limited or suspended. From April 1, 2022, businesses received UAH 6500 from the state budget for each employed internally displaced person (Schwartz,2022). As of March 2, 2023, 800 businesses had been relocated. It is noteworthy that 683 of these have resumed operations in their new locations. The most popular regions for business relocation, where the highest concentrations of relocated businesses are found, include Ternopil (6.3%), Khmelnytskyi (7.3%), Ivano-Frankivsk (8.3%), Chernivtsi (9.8%), Zakarpattia (14.5%), and Lviv (24%) regions (Berezhna, 2023). As of April 13, 2022, the Ministry of Economy had received 1500 applications for the relocation of businesses from combat zones to safer regions, with 300 businesses already relocated, of which 121 were operational (Melnytska, 2022; Relocation program..., 2022). According to World Bank forecasts, Ukraine will spend more than USD 600 billion on reconstruction and recovery (The World Bank estimated the financial loss of Ukraine from the Russian invasion at USD 60 billion, 2022). In 2023, the Ukrainian economy grew by 5-5.5%, despite a significant decline of 28.8% in 2022. In 2021, the economy experienced a 3% growth, whereas in 2020, there was a contraction of 3.8% (Samoilyuk & Levchenko, 2024). The economic recovery in 2023 was supported by several factors: ▣ rising consumer demand: this was driven by an increase in household purchasing power and the necessity to spend savings on goods; ▣ business activity: Ukrainian businesses adapted to the pandemic-related restrictions and ramped up production; ▣ high agricultural yields in 2021. The recovery in 2021-2023 could have been more faster, but it was hindered by the rapid increase in energy costs due to shortages, the high cost of raw materials, and the emergence of new virus strains that caused the pandemic. These challenges restricted production and disrupted logistics (Just about the economy (based on the Inflation Report for January 2022, 2022). According to the NBU, GDP growth rates were expected to gradually accelerate to 4% (Fig.4). 4 3.7 3.4 3 2.9 3.1 3.3 3.5 3.7 3.9 4.1 2021 2022 2023 2024 GDP growth rate, % linear (GDP growth rate, %) Figure 4. GDP growth rates in Ukraine in 2021-2024, % Source: developed by the author From Figure 4, it can be concluded that 2022 was expected to mark the beginning of GDP growth, with forecasts based on the linear model y=0.33x+2.7 and a high R² coefficient of 0.99, indicating a very strong correlation between the independent and dependent variab les. It was also predicted that inflation would gradually slow down to 7.7% in 2022 and further to 5% in 2023. In 2021, inflation reached 10% due to rising global food prices, which impacted internal prices as Ukraine both exports and imports many food products, coupled with increased energy costs. Another factor contributing to high inflation was the rise in income levels among Ukrainians. As wages increased, so did production costs, leading to higher prices for goods and services. The planned deceleration of inflation was attributed to (Just about the economy (based on the Inflation Report for January 2022,2022): 1)a gradual decline in global commodity prices, especially for energy resources and food, starting from their high levels; 2) last year’s high agricultural yields in Ukraine, which were expected to mitigate the upward pressure on food prices; 3)The National Bank of Ukraine’s plan to gradually raise the key interest rate to encourage citizens to save rather than spend. There is a direct relationship between the NBU’s key interest rate and bank rates, making savings in hryvnia more attractive to the public. The unemployment rate in Ukraine was 9.8% in 2021, 9.1% in 2022, 18.2% in 2023, and 14.2% in 2024, with plans to reduce it to 10-12% in 2025-2026 (Inflation report of the NBU, 2024). However, a decrease in unemployment will only be possible if the pandemic subsides and the economy recovers. Polinkevych Economic Forum, 2024, Vol. 14, No. 1 35 The war in Ukraine has caused a surge in the prices of oil, wheat, and metals, reaching levels higher than during the 2008 financial crisis. This also applies to gas prices in Europe. According to IMF forecasts, economic slowdown in European countries reached 3% by the end of 2022 (compared to an average growth of 5.66.7% in 2021) with an inflation rate of 5.5%. The IMF reports that Ukraine’s economy contracted by over a third– 35%– in 2022. By April 1, infrastructure damage had amounted to USD 68 billion. The agricultural sector saw a decline in the export of sunflower oil and corn, reaching only 5-10% of last year’s volumes (Zanuda,2022). The analytical note “Ukraine’s wartime economy: An operational assessment, April 2022” (Vyshlinskyet al.,2022) indicates that there will be changes in macroeconomic indicators such as GDP, budget, migration, agriculture, and industry. The regions most affected by the war include Donetsk, Zaporizhzhia, Kyiv, Luhansk, Mykolaiv, Sumy, Kharkiv, Kherson, and Chernihiv, which collectively account for 30% of the national GDP. Overall, it is worth noting that GDP in 2022 decreased by 10%. However, when considering the occupied territories, this figure could reach 35-40%. This can be contrasted with a reduction in energy consumption by approximately 35%, though at least 70% of Ukraine’s GDP is produced in safe territories. As of April 8, 2022, total physical damages amounted to USD 80billion. The majority of these losses were in the transportation infrastructure, accounting for USD 39billion, and housing, which suffered USD 29billion in damages. Ukraine’s budget deficit was UAH 166.8billion in 2021, UAH 911.1 billion in 2022, and UAH 1.33trillion in 2023 (Ilchenko,2024). This deficit is expected to increase in the future. Approximately 30% (UAH 32.5billion) of the revenue in the 2022 general budget came from dividend payments by state-owned enterprises, not including UAH 19billion from the NBU. This source of revenue is no longer available, and there is a trend of sharply declining revenue for the State Budget. According to UN estimates, as of February 24, 2022, 4.2million Ukrainians had migrated (Fig.5). Between February 21 and 23, 2022, 113000 people relocated from the Donetsk and Luhansk regions to Russia. Overall, nearly 6.48million people have been displaced within Ukraine due to the war. This has led to a significant labor shortage in Ukraine, which will likely slow down the pace of economic recovery in the post-war period. In Ukraine’s agriculture sector, arable fields and farms have been the hardest hit by the ongoing war. Approximately 13% of the land has been mined, making it difficult to prepare for spring planting. Due to the prolonged conflict in the Donetsk, Zaporizhzhia, Luhansk, Kharkiv, and Kherson regions, there has been a significant decrease in production: wheat by 23%, corn by 3%, barley by 21%, and sunflower seeds by 20%. Ukraine is a major player in the global market, supplying 44% of China’s wheat flour imports, 55% of its corn, and 59% of its sunflower oil (Vyshlinskyet al.,2022). Industrial losses in 2022 amounted to USD 6.7 billion. Around 100 industrial enterprises have been damaged or destroyed. The metallurgy sector lost 30% of its assets due to the destruction of major plants such as “Azovstal”, “MMK Ilyich”, the Avdiivka Coke Plant, “ArcelorMittal Kryvyi Rih”, “Zaporizhstal”, and “Kametstal”, which were among Ukraine’s largest metallurgical plants. Ukraine’s residential complexes have been damaged similarly to educational institutions and hospitals. As of March 22, 2022, almost all regions have experienced destruction, with the exception of Volyn, Lviv, Zakarpattia, Ivano-Frankivsk, Chernivtsi, Ternopil, and Poltava regions (Fig.6). Figure 5. Population left Ukraine as of April 3, 2022, male Source: summarised by the author for Н. Vyshlinsky et al.(2022) Figure 6. The number of destroyed objects of civil infrastructure in Ukraine as of March 22, 2022, units Source: created by the author based on H. Vyshlinsky et al.(2022) 75% 80% 85% 90% 95% 100% Damaged Completely destroyed 4431 654 135 9 548 72 80 Residential buildings Medical institutions Educational institutions Institutions of culture and arts 15281 350632 2451342 301405 390302 643058 394740 Belarus Russia Poland Slovakia Hungary Romania Moldova In 2020, research conducted by the International Organization for Migration revealed that 40% of individuals displaced after six years of war, whether relocated to other areas or abroad, did not consider returning to Donbas (Almost 40% of displaced people do not plan to return home after the end of the war– survey,2020). In April 2022, 10% of Ukrainians who left the country through the Zakarpattia region had no intention of