Challenges for development and reconstruction: time or illusion of action

Bohdan Danylyshyn analyzes the strategic challenges for the new Cabinet of Ministers. We publish the first part of his article.

The challenge of a tough war, naval blockade and internal miscalculations has left its mark on economic development.

What we have today:

• Real GDP has almost stopped growing amid declining investment and labor potential

The annual GDP growth rate in January-June 2025 was +0.8% (estimated by the Ministry of Economy), which is significantly lower than the government's forecast for the 2025 budget (+2.7%) and the actual growth in 2024 (+2.9%). GDP is 77% of 2021.

The key factors behind the low GDP growth rate are low investment activity and a shortage of labor resources. The current level of capital investment is only 5-6% of GDP, which is half the pre-war level and four times lower than the global average. The key factors holding back investment are the continuation of the war, tight monetary policy, and logistical and infrastructure constraints. Investment volumes are insufficient to restore the economy and compensate for losses.

The transition to an active economic recovery is constrained by military risks, labor shortages, tight central bank interest rate policy, low investment, and energy supply problems. The labor market is experiencing both a shortage of personnel and structural unemployment.

GDP recovery is mainly driven by sectors that do not generate new production potential. The main contribution to economic recovery is made by the service sector (trade, banks) and public administration.

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