Analysts suggest that the war in Ukraine is nearing its end. Rajan Menon, a scholar at the Saltzman Institute for the Study of War and Peace at Columbia University, believes that the prospects for a peace agreement are now becoming more realistic and that the return of Donald Trump to the post of US president could significantly affect the course of the war. 

There are at least four realistic scenarios for the war's end and Ukraine’s post-war security:

● Ukraine’s membership in Nato. This remains Kyiv’s primary goal, but reaching a consensus among the Alliance members will be difficult.

● A coalition of security guarantor states. However, Kyiv will insist on the US' participation in any such agreement, which is unlikely under Trump’s policies.

● Armed neutrality. This option involves Russia committing not to attack Ukraine, and Ukraine, in turn, refusing to join Nato and allow foreign troops to be stationed in the country. This may be the most realistic compromise, but also leaves Ukraine the most vulnerable. Ukraine should insist on maintaining a strong army and the right to purchase necessary weapons.

● European leadership. This means some European countries are considering the possibility of deploying their troops in post-war Ukraine.

As the year drew to an end the military outlook for the Armed Forces of Ukraine (AFU) was deteriorating with the Armed Forces of Russia (AFR) making significant advances in Donbas and threatening to inflict strategically important losses on Ukraine.

Ukraine faces escalating military pressure from Russia as it continues to run short of men, money and materiel. There is a wide expectation that President-elect Donald Trump will force ceasefire talks on Ukraine after taking office in January.

President Zelenskiy has revealed the casualty figures since the Russian invasion began in 2022, with 43,000 fatalities and an additional 370,000 soldiers wounded. Unofficial estimates of Ukraine’s dead are twice as high.

About 7.5mn Ukrainians have left the country due to the war. According to Foreign Minister Andriy Sybiga, about 7.5mn Ukrainians are abroad. To encourage their return, the state has created the Ministry of National Unity, which will focus on developing appropriate conditions for citizens to return home. The Verkhovna Rada Commissioner for Human Rights, Dmytro Lubinets, stated that the Russian Federation is holding more than 16,000 Ukrainian civilians captive. There is a separate list of such prisoners, but international humanitarian law and the Geneva Conventions do not provide for the exchange of civilian prisoners for military prisoners.

Russia is reportedly taking even heavier losses, but with its large population it has been able to absorb them, and continues to recruit some 30,000 new servicemen a month to keep the pressure on.

According to the Institute for the Study of War (ISW), between September and November, Russia incurred 53 military casualties for every square kilometre of territory captured in Ukrainian and Russian border areas, including the Kursk region, and it has recaptured over 200 square kilometres in November alone.

Additionally, Russia has escalated its aerial assault. Over the autumn months, it launched over 6,000 drones and missiles – three times the volume compared to the same period in 2023 – or 1,343 missiles per day.

In response, Ukraine has bolstered its missile defence capabilities, intercepting more than 40% of incoming ballistic and hypersonic missiles in November, a significant improvement compared with October’s 8% interception rate. Russia's long-range munitions are designed to deplete Ukrainian air defences as they did in January 2024, when the US ran out of money for Ukraine.

Russia has also deployed its heavy glide bombs, against which Ukraine has few defences, firing some 500 guided bombs a week.

Bankova (Ukraine’s equivalent of the Kremlin) is determined to fight on until a “just peace” deal with Russian can be struck, and Zelenskiy has indicated he is willing to open talks with the Kremlin. But the two sides remain very far apart, making a deal extremely difficult.

Ukraine’s international partners continue to ratchet up sanctions in an effort to tighten the noose on Russia’s economy. While Russia has found workarounds to bypass both the oil and technology sanctions, since December 2023 the US financial sanctions have proved to be much more effective. And in December the US was considering significantly tightening oil sanctions on Russia and targeting its shadow fleet in particular. 

At the same time, support for a ceasefire deal is growing in the EU as the burden of supporting Ukraine becomes increasingly painful. Most Poles favour a Ukraine peace deal with territorial concessions, according to a poll. The survey found that 55% of respondents prioritised ending the conflict over Ukraine’s territorial integrity, up from 39% in September 2024 and 26% in April 2022.

Economic outlook 

US President-elect Donald Trump said that rebuilding Ukraine could take about 100 years due to the scale of destruction left by Russia's aggression. He added that in some cities not a single building remains standing. The Parliamentary Committee on Regional Development and Urban Planning reported in December that updated estimates of Ukraine's damage due to the war could exceed $600bn.

Ukraine’s economy demonstrated remarkable resilience in 2024, achieving 4% GDP growth despite challenges posed by ongoing security risks and a sharp drop in agricultural output caused by a severe summer drought. The agricultural sector's share of GDP is about 20%. 

"The drivers of growth remain the transport and construction industries, processing and domestic trade," Minister Yulia Svyrydenko commented on the figures.

However, signs of a slowdown are emerging for 2025, with structural issues and fiscal tightening set to weigh on the country’s economic trajectory.

Nevertheless, damages that Ukraine has suffered through Russian aggression had reached about $800bn as of October, President Zelenskiy said, and Ukraine has no prospect of funding its reconstruction should the war end. The US is pushing for the $300bn of frozen Russian assets to be seized to pay for this work, but the EU remains nervous about the possibility of undermining trust in the euro and destabilising the European financial system, and is very unlikely to confiscate these funds.

Zelenskiy noted that what Russia earns from the use of its shadow fleet is many times greater than the aid Ukraine receives from all of its allies, as this fleet earns $11-12bn per month, and called again to strengthen sanctions.

Private consumption and exports drive growth: Economic growth in 2024 was broad-based, with nearly all demand-side GDP components contributing positively. Private consumption was the key driver, bolstered by a rapid recovery in household incomes. “Intense competition for labour in the private sector forces businesses to revise salaries to retain employees,” analysts noted.

Exports also played a critical role, supported by the smooth operation of Ukraine’s Black Sea shipping route. This alternative to the grain corridor, unilaterally suspended by Russia in 2023, has facilitated uninterrupted trade flows. However, government consumption made only a minimal contribution to growth amid ongoing fiscal consolidation.

Ukraine’s economy has now recovered to around 78% of its pre-war real GDP level. However, much of this recovery is due to the outsized contribution of the defence sector. By contrast, the production of non-defence goods and services remains below 70% of pre-war levels, reflecting the lingering effects of the war on the broader economy.

Fiscal constraints and weakening consumption in 2025: The outlook for 2025 suggests a deceleration in growth, with GDP expected to rise by 3.4%. One major headwind is the government’s plan to narrow the budget deficit from 23% of GDP in 2024 to 19% in 2025, a move that will curb public consumption and social transfers.

Private consumption, a key growth engine, is also set to lose momentum. Although competition for labour is likely to sustain wage growth in the private sector, public sector wages will stagnate, with the minimum wage remaining unchanged from 2024 levels. Furthermore, a recent hike in the military levy on household incomes, from 1.5% to 5%, will reduce disposable incomes.

“Private consumption dynamics are likely to weaken marginally due to decelerating income growth,” economists warned, adding that these factors will have a dampening effect on household spending.

Export challenges loom: Exports are expected to remain a key contributor in 2025, provided the Black Sea shipping routes continue operating without significant disruptions. However, analysts caution that sustaining the pace of export growth seen in 2024 will be difficult.

“This year was the first full year during the war when Ukrainian producers could take full advantage of the available sea transportation infrastructure,” experts observed. The one-off effect of this adjustment is likely to fade, and other challenges – such as disruptions to electricity supply – could further impede export growth.

Mid-term growth hinges on investment: Ukraine’s mid-term economic prospects depend heavily on improved safety conditions. “To reach a decent growth rate of at least 5%, Ukraine badly needs new investment to the tune of tens of billions of dollars,” ICU analysts highlighted.

Yet the prospects for significant foreign direct investment (FDI) or external private credit remain dim without a prolonged ceasefire and the availability of affordable war risk insurance. Such measures are seen as essential to attract the level of investment needed to drive post-war reconstruction and economic expansion.

While 2024 demonstrated Ukraine’s economic resilience under extraordinary circumstances, the road ahead remains fraught with uncertainty. Without improved security and a stronger investment climate, the country’s growth ambitions could be difficult to realise.

 

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