Ukraine Market Report — Q1 2023
The economy stabilised at a much lower level and began growing again from a very low base. A four-year external programme was agreed in March, the first of its kind under these conditions.
Overview
The economy stabilised. Output began growing year on year against the collapsed base of early 2022.
A four-year external financing programme was agreed with the IMF in March — the first multi-year programme agreed with a country in active conflict.
What stabilisation meant in practice
Not recovery. Output remained far below 2021, and the level of activity in the affected regions remained a fraction of what it had been.
What stabilised was the operating environment: businesses knew what conditions they were working in, energy supply followed a schedule that could be planned around, the export corridor was functioning, and the currency and banking system were predictable.
Predictability is worth more to an operating business than favourable conditions. A firm can plan around scheduled outages, a known exchange rate and a functioning corridor. It cannot plan around uncertainty about whether any of those will exist next month.
The first quarter of 2023 is where Ukrainian businesses stopped managing an emergency and started operating a difficult but describable environment.
The four-year programme
Agreeing a multi-year arrangement under these conditions required a framework that had not previously existed at the IMF, and its significance was as much about predictability of financing as about the money.
A government that knows its external financing for four years can budget. One negotiating quarter by quarter cannot.
Macro position
Growth from a low base. Inflation falling sharply as the 2022 shocks passed through the base. Exchange rate fixed. External financing covering the civilian budget.
Sectors
Agriculture — planting proceeding; the corridor operating.
Energy — the winter passed; repair and distributed capacity both expanded.
IT services — continued export growth.
Construction — early reconstruction activity in de-occupied and rear regions.
What the quarter settled
That the economy had found a lower but stable operating level, and that predictability had been restored even though favourable conditions had not.
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