The economy that kept working

The Ukrainian economy contracted severely in 2022 — one of the largest single-year falls recorded anywhere in recent decades — and then grew again in the years that followed, under continuing attack. Both facts need explaining.

Why the contraction was so deep

Occupation of productive territory, destruction of industrial capacity, closure of sea export routes, mass displacement of workers and consumers, and an energy system under attack. Any one of those would produce a recession.

Where the subsequent growth came from

Not from a return to the previous structure. Growth came from construction and repair, from public spending financed externally, from agriculture recovering export routes, from defence-related manufacturing, and from services in the safer western regions absorbing displaced population and demand.

That is a different economy from the one that existed in 2021, not a recovery of it.

What the aggregate number hides

Enormous regional divergence. Western cities have grown substantially; front-line regions have not. A national growth figure averages a boom and a collapse and describes neither.

It also hides the composition of demand: a large share is government spending funded from abroad, which is real economic activity and is not the same as private investment-led growth.

What would make it durable

Private investment, export capacity, and the labour force discussed elsewhere in this record. Growth driven by reconstruction spending lasts as long as the spending does; growth driven by firms selling things lasts as long as the firms do.

The honest reading is that Ukraine has demonstrated remarkable macroeconomic resilience and has not yet demonstrated a self-sustaining growth model. The first is a genuine achievement. The second is the task.

What the aggregate hides I can see in the order book: the growth is defence and construction, and demand outside those is still weak. That is not bad news but it is not a durable base either — a wheel turned by public spending has to start turning on its own. What will decide durability is when private investment comes back.