The Ukrainian economy was in two different states when it faced two large-scale Russian invasions. Even though the war had less of an impact on Ukraine's economic downturn in 2014 than it did in 2022, Ukraine faced an extra challenge a decade ago, which was caused by the negligent economic policy of the Yanukovych regime. The ex-president’s nepotistic circle, dubbed "the Family", embezzled the reserves and plunged the country into an economic crisis.
has analyzed the impact Russian invasions had on Ukraine’s economy in 2014 and 2022.
How we compared the impact of the war on the economy
To compare the impact the war had on Ukraine's economy, we needed to first look at the country’s macroeconomic indicators in different periods. The authors did it using data from the State Statistics Service of Ukraine, the National Bank of Ukraine, and the Ministry of Finance. To assess the numbers from specific industries, we also used data from the Association of Enterprises Ukrmetalurgprom and the Ukrainian Sea Ports Authority. The comparative analysis based on open sources was supplemented by evaluations made by economist Oleksii Blinov, who also assisted in gathering and verifying information.
The 2014 Russian aggression resulted in a protracted, two-year-long economic decline as Russia gradually invaded Crimea and then Donbas. The most active hostilities also lasted for two years. This includes the capture of the city of Debaltseve by Russian troops and Russian-controlled terrorist groups of the self-proclaimed Donetsk People’s Republic in the winter of 2015.
Later in 2015, the so-called Minsk agreements were signed to settle the conflict. However, the GDP was declining for two years, 2014 and 2015. The authors therefore decided to compare the periods in pairs, namely 2014–2015 and 2022–2023. This will also show how soon the economic downturn ended in different periods.
More devastation was caused by Yanukovych in 2014 and by the invasion in 2022
When Russia annexed Crimea and started hostilities in Donbas in 2014, Ukraine sank into an economic crisis orchestrated by ex-president Viktor Yanukovych`s regime.
During his term, which spanned from 2010 to 2014, there was a noticeable build-up of external imbalances, which are detrimental processes that have the potential to trigger an economic crisis on their own. The current account balance of payments deficit rose from 2.2% of GDP in 2010 to 9% in 2013, which means that we consumed far more from abroad than the economy exported goods and services.
At the same time, the currency exchange rate was artificially kept at the 7.99 UAH to USD level. The Yanukovych government secured it with administrative measures, inflated UAH interest rates, and a squander of international reserves, thus planting a bomb under macrofinancial stability.
This was the main difference from 2022, when Ukraine faced the Russian invasion with sufficient reserves, a responsible banking system, greater trust in banks, and the economic bloc ready to respond instantly to martial law.
Cumulative change over a multi-year period. The year preceding the military invasion was taken as the reference: 2015 vs. 2013 and 2023 vs. 2021. P.p. — percentage points. Author of the infographic: Oleksandr Shatov
Differences between economic decline in 2014 and 2022
The total amount of goods and services produced in the country, or the gross domestic product (GDP), fell less in 2014 than it did in 2022, when the drop hit a record low.
In 2014–2015, GDP fell by 15.8%, while the 2022 drop alone nearly reached 30%. However, the trajectory of recovery during the different stages of the Russian invasion was also different. In 2014, GDP was declining for two years in a row, while after a year of the full-scale war, according to the National Bank of Ukraine (NBU), it showed a recovery of 5.7%.
Cumulative change over a multi-year period. The year preceding the military invasion was taken as the reference: 2015 vs. 2013 and 2023 vs. 2021. P.p. — percentage points. Author of the infographic: Oleksandr Shatov
At first glance, the drop in GDP in 2014 wasn’t much of a disaster. However, the statistics can offer a distorted perspective. The State Statistics Service has not taken into account Crimea and part of the temporarily occupied territories in the Donetsk and Luhansk regions since 2014. Moreover, the regional GDP of Crimea and Sevastopol (together accounting for 3.7% of Ukraine's GDP before the war) was retrospectively removed from the 2013 comparison base, which affected statistical comparisons. On the other hand, the trade in coal, metal, and other goods from the occupied territories continued after their occupation, and the income from it added to the GDP.
However, 2014 saw a greater perceived downturn in the well-being of Ukrainians due to soaring inflation and the devaluation of the national currency. These were also experienced during the full-scale invasion, but on a smaller scale because of the unprecedented international support and the government’s resolute actions to sustain macrofinancial stability.
The devaluation of the Ukrainian hryvnia in 2014–2015 reached almost 67% (that is, the currency lost two-thirds of its value), and the two-year inflation was nearly 80%.
The 2022–2023 situation differs drastically. Despite the record drop in GDP, the devaluation of the hryvnia to the USD wasn’t so drastic, and inflation was also significantly lower.
Cumulative change over a multi-year period. The year preceding the military invasion was taken as the reference: 2015 vs. 2013 and 2023 vs. 2021. P.p. — percentage points. Author of the infographic: Oleksandr Shatov
The financial sector and international reserves in 2014 and 2022
The banks faced the two Russian invasions in very different states, which resulted in two drastically different trends in Ukraine’s recovery after the enemy attacks.
The banking system as of 2014 was larger, lacked transparency, and used obsolete approaches to evaluate asset quality. The sector was thus totally unprepared for the crisis. During Yanukovych’s presidency, many banks issued loans to their "good friends", and the NBU turned a blind eye to it. By 2022, the number of banks had decreased by more than half, and the National Bank had changed its evaluation methods completely.
Cumulative change over a multi-year period. The year preceding the military invasion was taken as the reference: 2015 vs. 2013 and 2023 vs. 2021. P.p. — percentage points. Author of the infographic: Oleksandr Shatov
Judging from the dynamics of deposits, these measures worked. In 2014, people would withdraw their deposits from banks and lose their money after the banks went bankrupt if the deposits in question surpassed the state-guaranteed payback level. In contrast, people trusted banks in 2022 and deposited more money. The government expanded deposit protection to all deposits of individuals without limitations in 2022. However, there were only a handful of small cases where these guarantees had to be applied.
When comparing 2014 and 2022, one thing that was very different was Ukraine’s "financial cushion" — the National Bank’s international reserves. This was largely caused by varying exchange rate policies in different periods.
When the National Bank’s head was Serhii Arbuzov, a man from Yanukovych’s corrupt inner circle dubbed the Family, the exchange rate was artificially fixed at around 8 hryvnias to the U.S. dollar between 2010 and early 2013. The fixed exchange rate and halted economic reforms took their toll — the IMF stopped its refinance program, and the National Bank was continuously burning its international reserves.
Such a time bomb of an economic disaster, further exacerbated by the dramatic events of 2014, went off with a bang: after the Euromaidan and the beginning of Russia's armed aggression, the hryvnia depreciated by 66.7% in two years. In early 2015, at the peak of the devaluation, international reserves shrank down to less than $6 billion, while net reserves (with debt to the IMF subtracted) were negative. From the perspective of currency liquidity, the country went bankrupt.
Cumulative change over a multi-year period. The year preceding the military invasion was taken as the reference: 2015 vs. 2013 and 2023 vs. 2021. P.p. — percentage points. Author of the infographic: Oleksandr Shatov
The situation with international reserves in 2022 was a far cry from this. Despite the devaluation pressure exerted on the hryvnia, the NBU paradoxically accumulated reserves, which have increased by 30.9% in two years. This helped calm down the foreign exchange market during the full-scale war and eventually switch to managed exchange rate flexibility in 2023. During the full-scale war, the NBU has been avoiding the mistake made by the pre-war NBU in 2012–2013, when it clung to a fixed exchange rate no matter what.
But still, the National Bank’s reserves would not have broken their historical records if it were not for international financial assistance. In 2014-2015, it was mainly limited to the programs of the International Monetary Fund and other international financial institutions. Ukraine was also forced to restructure its external commercial debt (the same debt largely survived until the second restructuring, whose terms are still being negotiated today).
On the other hand, in 2022, Ukraine received assistance from these organizations as well as from a few other countries, which pumped money directly into its budget and covered all expenses for paying pensions and salaries to public employees and educators. The whole pre-war Ukraine’s budget was immediately redirected to fund the war effort — the challenge we haven’t been able to tackle yet. The budget deficit has surged from 3.5% of GDP to 27% of GDP, or more than a trillion hryvnias.
Metallurgy and agriculture in 2014 and 2022
Metallurgy suffered significantly from both enemy invasions. The first stage was the partial loss of the Russian market, the disruption of chains of production, and newly imposed restrictions on rail shipping in 2014. As a result, Ukraine has lost 30% of its metal industry, as well as its place as one of the top 10 producers globally. Then in 2022, two large steel mills were lost in Mariupol, resulting in a further loss of 70% of steelmaking capacity. During the 10 years of war, Ukraine’s metal production has drastically shrunk fivefold.
Agriculture, in turn, suffered a relatively benign impact in 2014–2015, since the territories that were occupied during those years were less significant for food production. The 2015 harvest was only 5% smaller than that of 2013.
Meanwhile, the 2022 harvest of grain and oilseeds was lower because of the loss of territories, resulting in a smaller sown area. Despite export restrictions, Ukrainian farmers have continued to harvest and plant crops in government-controlled territories, sometimes risking their own lives. But still, the latest grain harvest was 30% behind the record figures of 2021.
In a larger perspective, the war has caused radical structural changes in the economy. For example, while the mining and metallurgical industry (iron ore, metals, and metal products) accounted for 28% of Ukrainian exports in 2013, now it accounts for only 13%. At the same time, the share of agriculture in exports has increased from 22% to almost half during this time, despite all the troubles. The traditional industrial sector has significantly lost ground to agriculture and the new economy (the share of IT in exports increased from 1% to almost 12% during the same period).
Cumulative change over a multi-year period. The year preceding the military invasion was taken as the reference: 2015 vs. 2013 and 2023 vs. 2021. P.p. — percentage points. Author of the infographic: Oleksandr Shatov
Business capacities and people in 2014 and 2022
Consumption became the driver of economic growth after the 2022 invasion. However, the capacity of the economy has decreased, which can be seen from electricity consumption and sales. The shutdown of businesses and the reduction in the number of consumers are reflected in a 35% drop in energy production after the 2022 invasion.
It’s impossible to compare the population decline in 2014 and 2022 due to a number of flaws in statistics that haven’t been corrected over the past ten years. The State Statistics Service also did not conduct a census before the full-scale invasion. The head of the State Statistics Service, Ihor Verner, explained in an interview with that the reason was the lack of funding.
The most prominent difference between Russia's aggression in 2014 and the attack on the entire Ukrainian territory in 2022 is that the latter prompted four to eight million Ukrainians to flee abroad, where they could take advantage of temporary protection programs in the European Union and special programs in other countries, such as United4Ukraine in the United States, CUAET in Canada, the UK Homes for Ukraine program in the United Kingdom, etc.
However, obtaining reliable migration statistics is so problematic that even Ella Libanova, director of the Institute for Demography and Social Studies and a leading expert in this field, says in public discussions that none of the data can be completely trusted.
Estimates vary due to the problems of collecting statistics, and thus, these numbers aren’t indicative of the real situation. The population statistics cited by the State Statistics Service for 2014–2015 still include the occupied territories of Donbas, although it is unknown what happened to many people there. Population statistics for 2022-2023 are not available at all and cannot be used as a reference.
Changes in trade between Russia and the world
The 2022 full-scale Russian invasion has ultimately brought trade with Russia to a halt. The 2014 "smaller-scale" creeping invasion was much less efficient in convincing businesses to break their ties with the aggressor’s market. On the other hand, the war intensified trade with the EU countries, which benefited from the agreements on the free trade area.
The EU accounted for 23% of Ukraine’s trade turnover in 2013, only slightly up from the 20% share in 1996, when the statistics were first recorded. In 2014, it jumped to 30% and has been increasing almost every year ever since. It was already 38% before the full-scale invasion and had increased to half of the turnover in 2023.
Pictures by Oleksandr Shatov
In the last year’s Ukrainian imports and exports taken together, the EU accounted for 56%, according to the calculations done by based on data from the State Statistics Service, the World Bank, and the State Customs Service exclusively compiled for us by Veronika Movchan, Academic Director at the Institute for Economic Research and Policy Consulting.
Meanwhile, trade with Russia decreased accordingly. From a 45% share of Ukraine’s trade turnover in 1996, it gradually lowered to 27% before the Euromaidan revolution and to 21% in the year when hostilities in Donbas began. Russia accounted for only 2% of Ukraine’s trade turnover just before the full-scale invasion, after which the share eventually dropped to zero.
Comparative shares of various countries in Ukraine’s trade turnover, 2014 to 2023
- China: 7% in 2014, 13% in 2023;
- Turkey: 4% in 2013, 7% in 2023;
- India: 2% in both 2014 and 2023;
- The United States: 2% in 2014, 3% in 2023;
- Rest of Asia: 13% in 2013, 10% in 2023;
- Rest of the world: 19% in 2013, 8% in 2023.
The full-scale Russian invasion of Ukraine in 2022 changed its economy faster and more drastically than in 2014. However, this is only the beginning of a new stage. Its further development is up to the Ukrainian government and businesses, as stable rules set by the government will allow Ukrainian businesses to complete the transformation of the Ukrainian economy, even amid continuing Russian aggression.
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