Can post-war Ukraine break three decades of economic weakness?

This article is a part of Poland Unpacked. Weekly intelligence for decision-makers

For more than four years, Ukraine has been fighting a war against Russia while trying to keep its economy functioning. Although the conflict has inflicted enormous damage, the country's development challenges run much deeper. Can Ukraine use the post-war reconstruction effort to achieve a lasting acceleration in economic growth?

Even before Russia's full-scale invasion, Ukraine was one of Europe's least developed economies. In 2021, real GDP per capita stood at USD 17,800 – roughly 40% of Poland's level.

The comparison highlights the extent to which Ukraine remained trapped in economic stagnation after the collapse of the Soviet Union. The last period of uninterrupted real economic growth lasting more than five years ended before the 2009 global financial crisis. Growth was subsequently derailed by Russia's 2014 annexation of Crimea and parts of eastern Ukraine, followed by the pandemic and, finally, the outbreak of full-scale war in 2022.

The depth of Ukraine's economic challenges is also evident in World Bank data, which show that the country has yet to regain its 1990 level of real income per capita.

According to a separate dataset from the Penn World Table (see chart above), Ukraine's GDP per capita has finally returned to its pre-transition level. Yet it took 29 years to get there, compared with just four years in Poland. Even Bulgaria, which also experienced a severe economic collapse during its transition, recovered in 16 years – almost twice as fast as Ukraine.

War economy

Entering the war in 2022, Ukraine’s economy was already burdened by structural weaknesses – from fragile institutions and corruption to oligarchic dominance and relatively low levels of human capital.

The war delivered a major macroeconomic shock. In 2022, GDP fell by as much as 28.8%, driven by Russia’s seizure of the industrial heartland in the Donetsk region and the need to suspend normal economic activity across the country. The following years brought a rebound: growth reached 5.5% in 2023, before slowing again. In 2025, GDP growth stood at 1.8% year on year, while the International Monetary Fund (IMF) projects a rate of 2% for 2026. The real economy remains roughly 20% smaller than in 2021.

At the same time, the economy continues to experience elevated inflation linked to shortages. In the year of the invasion, average annual price growth reached 20.2% year on year. It declined in subsequent years but remains above 5%. Unemployment is also a persistent issue, exceeding 10%. Even so, given the scale of military operations, the economy remains in relatively decent condition.

The primary challenge is, unsurprisingly, physical security. The second is energy shortages caused by Russian strikes on infrastructure, which constrain economic activity – particularly in industry.

The third is Ukraine’s heavy dependence on the West. The 2026 state budget allocates 27% of GDP to defence, alongside a fiscal deficit of around 18% of GDP. Public debt has surged from roughly 49% of GDP to around 100%. Without financial support from EU countries, Ukraine would be unable to sustain the war effort.

The battle for the future

At present, Ukraine’s overriding challenge is its war with Russia. The end of hostilities, however, will not automatically translate into economic prosperity. On the contrary, Ukraine will face a second struggle – this time in the political and economic sphere. A brief outline of the country’s strengths and the challenges ahead is therefore warranted.

On the side of advantages, one should first note the strong support of the international community. It is in the interest of European countries and the United States to ensure that Ukraine is rebuilt quickly and placed on a growth path after the war. A second advantage lies in reforms already undertaken, including those related to the rule of law. This has long been – and remains – one of the Achilles’ heels of the Ukrainian economy. Added to this is the rapid development of the domestic defense sector, based on indigenous technologies. After the war, it could account for a significant share of exports while also acting as a catalyst for innovation in other industries.

Another asset is the strong public support for Ukraine’s accession to the EU. This provides policymakers with political cover to take difficult and often unpopular decisions, similar to what occurred in Central and Eastern Europe in the 1990s and early 2000s.

Finally, one should also include a less obvious advantage: the economy’s developmental lag. Ukraine is starting from a very low base, which means it has a large stock of “low-hanging fruit.” Simply replicating solutions that have already proven successful in other countries could yield substantial gains.

Which direction will Ukraine take?

On the downside, the most significant factor remains institutional weakness. Ukraine continues to struggle with widespread corruption. In the 2025 Corruption Perceptions Index published by Transparency International, it ranked 104th globally. That said, the situation has been improving – slowly, but consistently.

Another challenge lies in domestic politics. A key question is whether Ukraine’s political parties will be able to reach consensus on the most important reforms. The economy is also still affected by oligarchic structures. As in the case of corruption, however, some improvement has been observed here as well.

A further constraint is human capital. The country’s population has declined from over 44 million before the war to around 39.5 million today. A large share of those who left are young people, who form the backbone of the economy. If they do not return, reconstruction will be significantly slower. Ukraine’s education system is also notably weak, adding to the long-term challenge.

There is also the risk of social fatigue stemming from prolonged hardship – particularly if reforms drag on and there is no rapid improvement in living standards in the first years after the war.

Which factors will prevail? At this stage, it is difficult to say. At the outset of Russia’s invasion, few expected Ukraine to be able to defend itself for so long and so effectively, and later even mount counteroffensives. One can only hope the same proves true for its economy.

Before the war, Ukraine was among the poorest economies in Europe and, over several decades, failed to significantly narrow the gap with its regional peers. Its development was uneven, with periods of growth repeatedly interrupted by deep crises.
Russia’s full-scale invasion in 2022 led to a sharp contraction in GDP and a lasting weakening of the economy. Despite a partial rebound, economic activity remains well below pre-war levels, while the country continues to operate under conditions of high inflation and heavy reliance on foreign assistance.
The key challenge will be post-war reconstruction, which does not automatically guarantee economic success. The pace of growth will depend on institutional reforms, demographic conditions, and the ability to curb corruption and attract capital.