Ukraine's economy stabilizes after shock of war

Oleksiy Panasenko, deputy director general for operations at the popular outlet, recalls how the business reeled before Novus, like many other large retail chains, managed to adapt.

"On the second day (of the war), there was already fighting on the outskirts of Kyiv," he told Reuters. "In February and March, our shops became more than a place to buy food: they were a place to meet, to communicate; so-called islands of stability."

And when Ukrainian troops forced Russia's army to retreat from the capital in the spring, the retail sector and the broader economy rebounded.

Data from Ukraine's European Business Association - which groups over 1,000 foreign and Ukrainian businesses - showed that by the end of May 47% of their members had fully restored operations and another 50% were working with some limitations.

But then missile attacks began in October, dealing Ukraine a hammer blow. Russia struck at power grids and sub-stations across the country, leading to outages during the freezing winter and hitting heavy industry hard.

The economy shrank by a third last year, the largest fall since Ukraine's independence from the Soviet Union in 1991. Before Russia's invasion, annual economic output had topped $200 billion.

As the war enters its second year with no sign of slowing, the challenges are formidable. Reuters canvassed seven economists whose forecasts for 2023 ranged from a sizeable - though far less dramatic - decline of 5% in gross domestic product (GDP) to a small expansion.

Access to reliable power will be a major obstacle. While many businesses are finding ways to cope with war, those that cannot run on generators alone will struggle this year, according to the economists, two government officials and executives from two private companies.

ArcelorMittal Kryvyi Rih, Ukraine's largest steel mill, said its production was currently at about 25% of pre-war levels amid electricity blackouts.

"We see small and medium-sized businesses adapt fairly quickly to power shortages by purchasing generators, batteries, and other equipment, while infrastructure damage remains moderate," said Olena Bilan, chief economist at Dragon Capital investment house, whose forecast was the most negative among the economists surveyed.

"If this situation persists, the fall in GDP in 2023 will not be as significant as we expect. But our forecast also envisages an end of the war's hot phase at the end of third quarter of 2023," said Bilan.

She added that because of international support for Ukraine, it was "realistic" to expect its forces to continue to win back territory occupied by the Russians.

Russian President Vladimir Putin has said the war is going according to plan, and casts it as a "special military operation" to protect Russia's own security.

Ukraine's central bank predicts GDP will grow by 0.3% this year, while the economy ministry forecasts 3.2% growth.

REUTERS