April 26, 2023

Blog: Export-import relations between Ukraine and the EU: the impact of war on trade and GDP

The accelerated globalisation faced by countries all over the world significantly affects the role of foreign economic activity as one of the important macroeconomic factors in the development of a modern economy. The benefits of international trade have been known for a long time, contributing to economic development, stimulating efficiency, and making it possible to benefit from participation in the international division of labour.

Export and import are an integral part of international trade. These indicators have a significant impact on a country’s GDP, both in absolute terms and per person, and therefore on the standard of living of every resident of the country. Currently, events are taking place in Ukraine that dramatically affect export and import indicators, and the structure of international trade, which significantly affects the country’s GDP. EU member states remain Ukraine’s permanent and main partners in the foreign market, and the start of a full-scale invasion has had a significant impact on us and our partners.

Analysis shows that export indicators in the main sectors of the Ukrainian economy in the period after February 24, 2022, decreased by 39.0%. [1]

Figure 1 – Main export industries (*data:* *https://uk.wikipedia.org*)

The main reasons for the decline in exports are:

1. Disruption of logistics

2. Destruction of enterprises – 422 enterprises have been completely or partially destroyed.

3. Disruption of relations between product manufacturers

More than half of Ukrainian exports in 2022 were sold to EU countries. Eight months into the full-scale invasion, the EU’s share reached 62%. In total, in 2022, Ukraine exported products worth more than $44 billion. Of these, goods worth almost $28 billion dollars were sold to the European Union. Ukraine’s largest export revenue came from exports to Poland, worth $6.6 billion. The growth of exports to Europe is due to the fact that in 2022, the EU cancelled customs duties on goods from Ukraine and introduced “visa-free transport”.

Figure *2 – Ukraine’s main EU export partners (data:* *https://www.the-village.com*)

Imports have declined significantly since the start of the full-scale invasion across all industries. Traditionally, the largest volumes of imports were mineral products ($1.19 billion), namely mineral fuel, oil and products of its processing. Moreover, the drop in fuel imports compared to the last pre-war July amounted to only a few percent, because the demand for fuel remained, despite the severance of relations with Belarus and Russia, and with the damage to Ukrainian oil refineries, the country had to look for additional supplies from the European Union. The second main category of imports, however, “Machines, equipment and methods; electrotechnical equipment” recorded a year-on-year decrease in volume of almost half. [1]

Figure *3 – The main fields of import (data:* *https://uk.wikipedia.org*)

One of the main factors affecting GDP is the export and import of goods. Currently, Ukraine’s GDP has decreased significantly, but not as much as could have been feared, given the loss of productive territory, war damage, disruption of economic supply chains, and human displacement. The last year before the invasion, 2021, was very successful for the economy of Ukraine. In 2022, the economy fell by 30.4%. Usually, during wars or revolutions, countries suffer considerable losses. During the Arab Spring, the economies of Libya and Egypt were reduced immediately for a decade, both in terms of living standards and in terms of economic income. [2]

Figure 4 – Changes in Ukraine’s GDP during crisis periods (data: https://uk.wikipedia.org)

Of all the kinds of foreign economic activity, foreign trade has the most direct impact on GDP, the final effect of which is determined by net exports. The factors of an open economy are exports and imports. This means that the reduction of exports and imports in monetary terms leads to a decrease in the indicators of net exports and, accordingly, the indicators of the GDP of our country.

The decrease in Ukrainian exports reduces the GDP of our country. But 70% of our economy is occupied by the service sector, especially IT (45% of the country’s total export of services), which has continued to work during the war, exporting services, but was unable to increase them (in 2021, the indicator in monetary terms was 37%, and in the results of 2022 – 35%). Even if the war continues, GDP will not fall completely.

Imports represent expenditures by individuals or firms on goods and services produced in other countries. They also mean that a certain proportion of our spending on consumer and investment goods leaves Ukraine and contributes to the GDP of the exporting countries. Therefore, the decrease in imports to Ukraine does not affect the GDP of our country, but that of the exporting countries (that is, countries that import goods to us).

From this, we understand that a full-scale invasion affects not only the GDP of our country but also our partner countries. It is not yet fully felt by other countries, but if the full-scale invasion continues, it will be felt by the population of partner countries through a reduction in GDP per capita.

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