Dancing on the edge of an abyss
The last few months have been far from enjoyable. The anxious anticipation of decisions from the West regarding military supplies, coupled with persistent efforts by Russian friends to disrupt the process, paints a bleak picture. The tension between President Volodymyr Zelenskiy and Commander-in-Chief Valerii Zaluzhnyi, culminating in the latter's dismissal, has only deepened the public gloom, pushing the level of nervousness to unprecedented highs after the full-scale invasion began in February 2022. This is all happening against a backdrop of military reports of artillery shell shortages, and a growing deficit of recruits at the frontline. Despite the challenging situation, the frontline has remained largely unchanged for many months, and missile strikes — while regular and intense—have not caused as much damage as in the previous year, thanks to Ukrainian air defense successfully intercepting the majority of missiles and drones.
As the second year of the war ends, Ukrainians appear visibly tired and depressed, with a growing understanding that the war will continue indefinitely. Despite this somber mood, public readiness to resist has not diminished. Even after Zelenskiy dismissed Zaluzhnyi, and appointed Oleksandr Syrskiy as the new commander-in-chief — a decision that met with significant public disapproval—opinion leaders, including those previously highly critical, have called for support for the new commander-in-chief, and have urged calm and unity. The frustration felt by Ukrainians over Zelenskiy's decision will likely impact his popularity. Yet the absence of protests is a clear sign that society remains committed to standing against the existential threat, and is even prepared to accept significant changes in leadership.
It's encouraging news that European leaders have started to recognize that Russian aggression extends beyond a mere “border conflict.” It may have taken two years for them to grasp what seemed obvious, but better late than never. Western media headlines are promising, and Donald Trump's statements have, in fact, acted as a wake-up call for many who previously felt secure. The Baltic states have begun constructing fortifications along their borders with Russia, and Germany is significantly increasing its investment in the production of artillery shells. As the U.S. presidential election approaches, many other EU countries will likely accelerate their efforts to avoid what Ukraine is experiencing. For Ukraine, this shift in perspective offers a glimmer of hope for survival.
Amid mounting security issues, the economy is performing fairly well, with the hryvnia stabilizing after early January turmoil. Inflation continues to ease, recorded at 0.4% m/m or 4.7% y/y in January. Agro-exports are accelerating via the sea route, as more Russian battleships are sunk in the Black Sea. Budget collections in January appear consolidated, covering needs amid delayed financial inflows from both the European Union and the United States. Despite an expanding deficit, the external balance remains safe, with $38.5 billion in gross reserves available to navigate the uncertainties of financing.
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