The National Bank of Ukraine (NBU) is recording the adaptation and gradual recovery of the economy after its collapse in the first weeks of the war, said Volodymyr Lepushinsky, director of the NBU’s Department of Monetary Policy and Economic Analysis.
“It’s hard for the economy, but it adapts and works. As the main destructive factor – the Russian occupiers – is eliminated, it is recovering. If in March 10 regions and Kyiv were covered by occupation and active hostilities, which produced 55% of GDP, now it is six regions and 20% of GDP, respectively,” he wrote in a column published on the website of the Interfax-Ukraine agency on Friday.
Among the main processes that indicate recovery, Lepushinsky called the almost halving of the number of enterprises that completely stopped their activity – from 32% to 17%, although 60% of enterprises are still operating below the pre-war level of workload.
According to the NBU operational surveys, almost a third of enterprises now do not experience problems with a lack of resources at all, and 48% of those surveyed will have enough available resources for more than a month, thus, compared to March, the share of businesses in which stocks have run out has decreased.
Lepushinsky added that metallurgy is starting to work, mechanical engineering is being activated, the food industry is operating at full capacity in relatively calm regions and is being restored in the liberated territories.
According to him, the labor market is gradually recovering, although the number of job seekers is growing faster than the number of vacancies, which leads to lower wages. “Less wages are an unpleasant consequence of the war. However, now it is important that the labor market is functioning and allows businesses to adapt and find workers,” said the representative of the regulator.
He also pointed out that the National Bank will continue to pause in the publication of the Inflation Report with a macroeconomic forecast until the economic situation normalizes.
“War is almost the only good reason to pause macroeconomic forecasting. Given that additional sources of uncertainty are attached – the duration and consequences of hostilities – it is impossible to make accurate forecasts today,” Lepushinsky explained.
According to him, in order to keep abreast, the NBU has stepped up work on the search and processing of alternative data, as the number of official data has narrowed.
“With the current intensity of events, only the most obvious trends that determine the development of the economy should be determined. After the uncertainty is reduced, forecast scenarios will be “strung” on such trends,” wrote the director of the NBU’s Department of Monetary Policy and Economic Analysis.
He clarified that the National Bank expects that GDP will fall by at least a third this year, and losses could be greater if active hostilities drag on.
One of the reasons for this fall Lepushinsky called the destruction of the most important infrastructure, production, real estate and valuable movable property. According to the latest NBU estimates, the loss of physical capital is about $100 billion, or half of Ukraine’s total GDP for 2021, the column notes.
Among other factors, the author named the lack of internal sources for such a significant increase in capital, although he considers it quite reasonable to hope for external sources both at the expense of confiscated Russian assets and thanks to the support of international organizations, the EU and bilateral assistance from countries.
Lepushinsky pointed out the labor force as another reason, since, according to UN estimates, 5 million people left the country, and at the initial stage of recovery, due to the disruption of communications, the destruction of production and logistics, the demand for labor will be low, which will lead to a high level of unemployment and put pressure on wages.
“However, with the resumption and growth of production capacity, the situation will change: the demand for labor will grow and lead to higher wages. An important role will be played by measures to stimulate the return of migrants to Ukraine, for example, through tax incentives and retraining measures,” the NBU representative said.
