Forecasting Macroeconomic Dynamics in Ukraine: The Impact of a Full-Scale War

Abstract

This research paper addresses the forecasting of Ukraine’s macroeconomic dynamics amidst a full-scale war, which has profoundly impacted its economy, causing disruptions in key sectors like agriculture and energy. The significance of this research lies in its focus on an economy facing severe wartime disruptions and providing crucial forecasts for recovery and policy planning. The study uses the ARIMA (Autoregressive Integrated Moving Average) model to analyse various economic indicators, including GDP, inflation, unemployment, public debt, foreign direct investment, and currency devaluation. ARIMA models are chosen for their effectiveness in handling time series data that exhibit autocorrelation, making them suitable for analysing macroeconomic trends in volatile environments. Data was collected from a wide range of national and international sources, and the ARIMA model was applied to identify correlations, trends, and potential scenarios for Ukraine’s economy. The research finds that Ukraine’s economy has suffered significantly due to the war, with indicators like GDP and the unemployment rate experiencing extreme fluctuations. The destruction of infrastructure, displacement of millions, and blockades of key sectors have led to a sharp contraction in GDP. Furthermore, inflation and currency devaluation have persisted due to supply chain disruptions and energy shortages. The analysis reveals strong positive autocorrelations in economically active population figures and the unemployment rate, indicating consistent trends over short lags. In contrast, weak but statistically significant autocorrelations are found in foreign exchange reserves and public debt. The study also observes that foreign direct investment in Ukraine demonstrates cyclical behaviour, with downturns during crises like the war and the global financial crisis. The monetary policy responses by the National Bank of Ukraine, particularly interest rate hikes, have played a key role in stabilizing inflation, but inflationary pressures remain high. The war's impact on critical sectors such as agriculture, energy, and industrial production suggests that reconstruction and recovery will be contingent on external financial support and strategic economic policies. The paper discusses the challenges and complexities of forecasting economic dynamics in conflict zones, where traditional economic models are insufficient to account for the uncertainties and shocks caused by conflict. The use of ARIMA models has proven effective for short-term forecasting, but the paper emphasizes the need for dynamic models that incorporate war-related variables like military expenditures, sanctions, and international aid inflows. The research underscores the crucial role of international institutions, such as the IMF and the World Bank, in aiding Ukraine's recovery through accurate macroeconomic forecasts. These forecasts guide the disbursement of international aid and shape policies for the country's reconstruction. Moreover, the paper notes the potential for Ukraine’s economy to undergo structural transformations toward energy independence, export diversification, and industrial reconstruction. This research is highly relevant for policymakers and international stakeholders involved in Ukraine's post-war economic planning, offering insights into the country's macroeconomic dynamics and potential paths for stabilization and recovery. Accurate forecasts are pivotal for guiding resource allocation, managing inflation, and ensuring long-term economic stability.

Keywords

• macroeconomic forecasting
• ukraine economy
• arima model
• war impact
• economic recovery
• inflation and devaluation
• international aid