CBR studiesRunning wartime economy in Ukraine: May 2022

For more than 100 days, the Ukrainian economy has been operating under war conditions. What «knots» of the economic mechanism did the war hit? What are the consequences of the first months of the war for the economy? What are the business adaptation strategies? What should be the objectives and principles of state regulation?

The war caused the disruption of supply chains, the loss of production facilities or the impossibility of their full use, and the workforce displacement. War impedes the efficient use of resources, reduces the advantages of businesses from economies of scale. Consumer demand is decreasing since part of the consumers is left abroad, and those who remained limited the demand to basic needs (for each of the consumer groups).

However, businesses are gradually adapting to war conditions. Economist Frank Knight suggested distinguishing between the concepts of «uncertainty» and «risk». Uncertainty is when it is impossible to describe and measure the consequences and probable losses from certain events. Ukrainian business has been in this state on the eve of the war and in the first shock days of the war. Risk differs from uncertainty in the regard that it can be measured, and it is possible to estimate potential losses. As the war progresses, uncertainty, which cannot be described and measured, turns into a set of risks that can be analyzed and estimated. Accordingly, businesses can build strategies for responding to risks and adapting.

Adaptation of business to new conditions and implementation of new arising opportunities are important for victory in the war of attrition and lay the directions of future development and economic recovery.