Ukraine

Economy

Ukraine’s modern economy was developed as an integral part of the larger economy of the Soviet Union. While receiving a smaller share (16 percent in the 1980s) of the Soviet Union’s investment funds and producing a greater proportion of goods with a lower set price, Ukraine was able to produce a larger share of total output in the industrial (17 percent) and especially the agricultural (21 percent) sectors of the Soviet economy. In effect, a centrally directed transfer of wealth from Ukraine, amounting to one-fifth of its national income, helped to finance economic development in other parts of the Soviet Union, notably Russia and Kazakhstan.

By the late Soviet period, however, the Ukrainian economy was under severe strain, and it contracted sharply early in the independence era. A period of extreme currency inflation in the early 1990s brought great hardship to most of the population. Despite early hopes that Ukrainian economic independence—with the concomitant end to the transfer of funds and resources to other parts of the Soviet Union—would alleviate the declining economy and standard of living, Ukraine entered a period of severe economic decline. Daily life in Ukraine became a struggle, particularly for those living on fixed incomes, as prices rose sharply. Citizens compensated in a number of ways: more than half grew their own food, workers often held two or three jobs, and many acquired basic necessities through a flourishing barter economy. By 1996 Ukraine had achieved a measure of economic stability. Inflation dropped to manageable levels, and the economy’s decline slowed considerably.

At the turn of the 21st century the economy finally began to grow, at least partially as a result of increased ties with Russia. In the early 21st century many young Ukrainians, particularly residents of the country’s rural west, sought employment opportunities abroad. Although such migration sometimes led to localized labour shortages within Ukraine, remittances from the Ukrainian diaspora amounted to some 4 percent of the country’s gross domestic product (GDP).

The economy contracted sharply in 2014 as a result of the political crisis that toppled the government of pro-Russian Pres. Viktor Yanukovych. Russia responded to Yanukovych’s ouster by illegally annexing Crimea and fomenting an insurgency in southeastern Ukraine. A cease-fire between the Ukrainian government and Russian-backed forces in February 2015 created a state of frozen conflict, and the ongoing violence shattered daily life in what had been Ukraine’s most productive industrial region.