The first year of full-scale war: an economic assessment

Twelve months after February 2022, the economic position can be stated with reasonable precision, and the useful exercise is to separate what was destroyed from what adapted.

The numbers

Output fell by roughly a third — the largest single-year contraction recorded in a modern economy outside a total war mobilisation. Around a fifth of the territory was outside government control at various points. Several million people were displaced abroad and several million more internally.

The budget ran a deficit in the region of five billion dollars a month, financed by external assistance and, in the early months, by central bank monetisation that was subsequently wound down. Inflation reached the mid-twenties before falling.

Exports collapsed with the closure of the ports and recovered partially with the grain corridor. The current account was sustained by assistance inflows rather than by trade.

What was destroyed

The heavy industrial base of the south-east, much of it permanently. Azovstal and Illich in Mariupol were among the largest metallurgical complexes in Europe and are gone as operating assets. The Donbas coal and coke complex is outside government control.

Port infrastructure in the Azov Sea. Airport infrastructure across the country, including the terminals built for Euro 2012.

And from October 2022, a sustained campaign against the electricity system that damaged generation and high-voltage substations across the country.

What adapted

The banking system continued to function without interruption, which is the most consistently underestimated fact of the period. Card payments, ATMs and interbank settlement worked including in front-line areas, and the reason is the infrastructure redundancy built after 2014 and the clean-up of 2015 to 2018.

The state kept paying salaries and pensions throughout.

Agriculture planted and harvested. Volumes fell but the sector functioned, and the alternative export routes — rail, Danube, road — absorbed a substantial share of the crop before the corridor opened.

The IT sector kept delivering, with relocated staff and distributed infrastructure.

And a very large business relocation took place, largely privately organised, moving manufacturing capacity westward with the workforce that could travel with it.

What the year established

Three findings that matter for anyone assessing the country now.

Institutional resilience is real and it was built deliberately between 2015 and 2018. The central bank, the treasury, the banking system and the railways all performed, and none of that was accidental.

Physical infrastructure is the vulnerability, and specifically energy. An economy can operate through territorial loss and currency stress; it cannot operate without electricity, and the attacks on the grid were the most economically damaging element of the campaign.

And external financing is the binding constraint, not domestic capacity. Ukraine's civilian budget is funded from abroad on a rolling basis, and the largest single risk to economic stability is a gap in that calendar rather than any battlefield development.

What it does not establish

The year told us very little about the medium-term recovery, because none of the variables that determine it — the security settlement, return migration, reconstruction financing, accession pace — were resolved.

Anyone extrapolating a recovery path from the first year's data is extrapolating from an emergency, and emergencies are poor predictors of what follows them.

Related in this archive

• A year in review, and the one ahead: what the second full year settled
• How the shock propagated: the war's economic effects beyond Ukraine
• The third year: an economy that learned to function under conditions it was never designed for
• Ukraine Annual Review 2023: the year improvisation became structure

Reading that year as a balance sheet is among the hardest things I have written in this archive. What the companies that kept working through a third of the economy disappearing had in common is that they cut their fixed costs quickly — we did the same. What the year established was not a recovery but a floor: what comes next starts from known ground rather than unknown.