Even less electricity. What does the disruption of the Ukrainian economy look like?

What is the real level of Ukraine’s GDP and what is the extent of the crisis without taking into account foreign aid?

Ukraine’s GDP last year reached UAH 6.5 trillion in nominal terms.

The amount of international aid is 1.5 trillion UAH or 23%.

This money goes mainly to cover the social expenses of the budget: pensions, salaries of state employees, social benefits, scholarships, etc.

In dollar terms, the picture is almost the same: GDP in 2023 was $160 billion. aid in equivalent – ​​$40 billion. or 25%.

In fact, the impact of foreign aid is broader.

This money is used to pay for social transfers, and these transfers are used to purchase social goods and services, especially national production. In other words, effective demand occurs. This means that the multiplier effect of budget and consumer spending comes into play.

We can assume that 1/3 of GDP, directly or indirectly, consists of international foreign aid, and without this aid, our gross product last year would hardly have exceeded $100 billion.

However, in addition to the state budget, there is also the balance of payments factor.

Thus, despite the fact that the balance of payments remained in excess due to the positive balance of the fiscal account (almost +$20 billion) and current transfers (+$24 billion), the trade balance deficit last year approached the level of $40 billion. ).

That is, without grants (they go to transfers) and loans (they go to a surplus in the fiscal account), we would have a “hole” of $ 40 billion in our balance of payments. There is a deficit of 25-30 billion dollars.

This will lead to a deep devaluation of the hryvnia at least to the level of 2022.

This would again lead to a revaluation of the currency equivalent of nominal GDP – so currency GDP could be reduced to $70-80 billion.

By the way, there is nothing unusual in this: in 2015, our GDP was already falling from $183 billion. It increased to 90 billion dollars in 2013.

What is the relative depth of the fall?

Real GDP in hryvnia in 2022 decreased by 28.8% and increased by 5.3% in 2023 (recovery increase on a low statistical comparison basis).

Last year’s currency equivalent was $160 billion. – this is 80% of the 2021 level (the historical maximum of $200 billion was then recorded).

However, here again, a significant statistical “disturbance” is created due to foreign financial aid.

Therefore, we use the so-called “electricity method” – this is when the GDP growth rate is determined by the dynamics of electricity production and consumption.

In 2021, 155 billion kWh of electricity was produced, 120 billion kWh (or 77%) was consumed, the rest was losses, network expenses, etc. and net exports amounted to 2 billion kWh.

In 2022, production decreased to 115 billion, consumption decreased to 90 billion (78%), and net exports decreased to 1 billion.

The decrease in production was 26% and consumption was 25%. This roughly corresponds to the level of GDP decline in 2022 (up to 29%).

However, in 2023, we see a completely abnormal picture: Electricity production decreased to 105 billion, and consumption decreased to 85 billion, that is, 81%. A net electricity import of 0.4 billion kW/hour was recorded, not exports.

Relatively speaking, production decreased by 9% and consumption decreased by 6%. At the same time, statistics determined that GDP growth was 5.3%.

The situation is truly unusual because electricity consumption decreased by 6% and gross product increased by 5%. This does not happen.

What is the reason?

In my opinion, the root of the problem lies in the deep structural deterioration of our economy.

Lack of a direct relationship between production growth and electricity consumption, almost complete deindustrialization and dependence of GDP on the raw material sector (agriculture), banking and service sectors. There is also an increase in the contribution of tax revenues to GDP.

All these parts of the economy (except agriculture) depend directly on the amount of foreign aid: taxes, finance and the service sector (including trade) are kept afloat by foreign financial aid.

The positive effects of such a structural transformation include not only a reduction in the gap between production and consumption: if in 2021 consumption accounts for 77% of production, in 2023 this proportion will be 81%.

This means that up to 4% of electricity production, which was previously “lost” in the form of losses in the grid, is now officially consumed.

I can explain this by the decline of the “shadow electricity” market, where large enterprises stopped or were destroyed during the war.

In fact, our economy is becoming less and less energy efficient. It is not energy intensive (which is a completely positive phenomenon), but rather less energy intensive.

Tesla also determined the level of development of civilization from the number of cars and the level of electricity production.

In this format, our economy can forget how to produce anything in principle during the war.

The horizons of post-war structural transformations (if any) are becoming increasingly uncertain.

The author expresses his personal opinion, which may not coincide with the position of the editors. The author is responsible for the data published in the “Opinions” section.

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