War is not only about human casualties and destroyed infrastructure. It is also a huge burden on the country's economy, which is forced to rebuild all processes during hostilities.

Three years of Russia's full-scale invasion cost Ukraine more than 20% of its economy. As of early 2025, real GDP is only 78% of its pre-war level. Economic stabilisation is taking place, but the pace of recovery is critically slowing.

Stagflation instead of growth

The post-war economic rebound has already worn off. After falling by 28.8% in 2022, the economy recovered by 5.5% in 2023, but in 2024 it grew by only 2.9%.

In 2025, the downward trend will only intensify. In January-February, GDP grew by a symbolic 1.1%. At the same time, in February, this figure was only 0.7%.

The most worrying signal is that we are approaching economic stagflation. This is a situation where high inflation is accompanied by low GDP growth. None of the real sector's industries have recovered to pre-war levels in terms of their contribution to GDP.

Inflation with a ‘double face’

In February 2025, consumer inflation reached 13.4% year-on-year, while industrial inflation crossed the 30% mark. The NBU raised its key policy rate to 15.5%, but the problem is much deeper.

The current inflation in Ukraine is mainly structural rather than monetary in nature. It is not caused by excessive money supply, but by fundamental changes in the structure of production and supply of goods and services due to the war.

The destruction of production facilities, disruption of supply chains, and rising production costs are the real drivers of price growth.

A paradoxical consequence of monetary policy was that Ukrainian banks began to make money from the state instead of lending to the economy. NBU certificates of deposit proved more attractive than support for the real sector. The result was a record profit of UAH 103.7 billion for the banking system in 2024.

Increased trade imbalance

Since the start of Russia's full-scale invasion, Ukraine's trade balance has remained consistently negative. But the most worrying thing is the dynamics - the situation is getting worse.

Від початку повномасштабного вторгнення Росії торговельний баланс України залишається стабільно від'ємним. Але найбільше занепокоєння викликає динаміка - ситуація погіршується.

The import-export coverage ratio for goods fell from 73.6% in 2022 to 59% in 2024. The negative balance of foreign trade in goods reached $29 billion last year, exceeding the figure for 2023.

This situation puts systemic pressure on Ukraine's foreign exchange market and further increases the dependence of economic stability on external financing.

Unprecedented defence spending

Since the beginning of the full-scale invasion, all of Ukraine's own budget revenues have been used to finance defence. These expenditures account for about 50% of the budget. Almost all civilian expenditures of the state budget are financed by foreign aid.

If you look at the dynamics of defence spending, it is impressive:

• 2022: UAH 1.54 trillion (32.5% of GDP)
• 2023: UAH 1.14 trillion (18.2% of GDP)
• 2024: UAH 1.69 trillion (21.6% of GDP)
• 2025 (plan): UAH 2.22 trillion (26.3% of GDP)

Such a share of defence spending in GDP is unprecedented for peacetime, but it is in line with the level of spending by countries during the major wars of the 20th century.

Budget deficit and debt burden

Significant defence expenditures put a critical burden on the budget, which is reflected in the growing deficit. In 2025, the planned deficit will reach UAH 1.6 trillion (19.4% of GDP), which is significantly higher than in 2024 (UAH 614.5 billion).

As of the beginning of 2025, Ukraine's public and guaranteed debt reached $166.1 billion (90.4% of GDP), dangerously approaching the critical level of 100%. In 2024, the debt increased by $20.7 billion.

With limited access to commercial capital markets and high interest rates, this poses significant risks to fiscal sustainability.

Five critical imbalances

In summary, there are five key macroeconomic imbalances caused by the war:

1. Stagflationary processes - a combination of high inflation and low economic growth.
2. Structural inflationcompany's business is also experiencing a significant impact from the disruption of production chains and rising costs.
3. Negative trade balance with a deteriorating trend.
4. Critical burden on the state budget due to high defence spending.
5. High dependence on international financial assistance to maintain economic stability.

These imbalances pose serious challenges for monetary policy, maintaining the hryvnia exchange rate, and ensuring the fiscal sustainability of the state in the context of a prolonged war.

It is important to realise that these economic difficulties are not temporary. Such large-scale structural deformations will require years of targeted policy to overcome. And this will have to be done not after the victory, but in parallel with the conduct of hostilities.