Ukraine’s Economy after the Invasion: An Alternative Data Perspective


Key Takeaways

  • Ukrainian growth has consistently surprised to the upside since the start of the war
  • However, the lack of details make it hard to confirm – industrial production was last released Dec ’22 and there is no PMI
  • MacroX’s real-time growth nowcast validates the positive official numbers using alternative data

Russia’s invasion of Ukraine and the subsequent war has had devastating consequences for the Ukrainian economy. The advent of the war resulted in the damage of much of Ukraine’s infrastructure and turned Ukraine’s farmland into battlefields. Such was the level of destruction that institutions such as the World Bank estimated just after the beginning of the invasion that Ukrainian GDP could fall by almost 50% in 2022.

Ukraine’s economic performance in 2022, despite a sharp contraction, was better than expected

However, several factors have resulted in the Ukrainian economic performance defying these dire predictions. Firstly, the success of Ukrainian forces on the battlefield has ensured economic activity in cities like Kyiv has been able to rebound somewhat. Secondly, Ukraine’s transition into a wartime economy caused defense spending to be five times higher than pre-war budgets, helping to support GDP. Thirdly, tens of billions of dollars of foreign aid has flowed into the country aiding the government in funding its budget deficit and arming the military. Fourthly, the signing of the UN-brokered Black Sea grain deal in Q3 2022 allowed Ukraine to continue to export much of its grain (pre-invasion, grain constituted 40% of Ukrainian exports and 12% of its GDP), a key source of income for the country. Finally, four million migrants returned to the country in the second half of 2022 boosting economic activity. As a result of these factors, the Ukrainian economy contracted by only 30% in 2022, a much better outcome than the initially estimated 50%

So far, economic growth in 2023 has surpassed expectations but can we trust the data?

Economic conditions remain perilous in Ukraine. Access to reliable power is a major issue with blackouts frequently occurring and the Ukrainian Finance Minister has estimated between 40-60% of the energy sector has been damaged. The damage done to Ukrainian infrastructure and the inherent uncertainty associated with the war has caused economic conditions to be especially opaque. Earlier this month (Jun 2023), the Ukrainian government released their estimate for Q1 GDP growth in 2023 where they reported that annual growth was -10.5% – much better than the -14.1% they had expected. However, validating this number has become much more difficult. Official industrial production data is currently subject to at least 6m lags due to the war (the latest data release is Dec 2022) whilst “soft” data coverage in Ukraine is also sadly lacking as there is no PMI.

MacroX’s Ukrainian Growth Nowcast

MacroX’s use of alternative data, however, provides real-time coverage of Ukrainian economic activity. By skilfully combining inputs from news, social media, satellite, and sensor data, we can construct a growth measure that can measure economic information regardless of conditions that hamper traditional data sources. Our Nowcast for Ukrainian growth shows the economy recovering from the lows of 2022, supporting the official data. Furthermore, we see this positive momentum continuing into Q2.

Figure 1: MacroX’s Ukrainian Growth Nowcast shows activity recovering in 2023 from the lows of 2022

The accuracy of our Nowcast can be seen when we regress Ukrainian industrial production on MacroX’s growth measure:

Figure 2: Scaled Regression Table of Ukrainian Industrial Production growth on MacroX’s growth measure

Our Nowcast, which is available at least two months before official data, provides a reliable estimate of Industrial Production, demonstrating a high R-squared value of 21.5%. Furthermore, it has a coefficient that is both economically (a coefficient of 0.695 indicates a sizeable relationship between our Nowcast and official industrial production) and statistically significant (at better than the 1% level), validating its accuracy.

Real-time monitoring can bring clarity amidst uncertainty

The economy’s future performance is highly uncertain depending on factors such as the duration of the war, the amount of external support (the IMF approved a new $15bn program in March), as well as the continued extension of the Black Sea Grain deal. In particular, the grain deal looks the be in jeopardy with Russia threatening to pull out due to feeling “cheated” by the West while Kyiv is also reportedly “not optimistic” of an extension being granted. This uncertainty is exacerbated by the lack of traditional macroeconomic data coverage, complicating the job of investors and policy-makers. Hopefully, MacroX’s real-time alternative data-generated Nowcasts can help.

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