Unable to resolve the situation on the battlefield in its favor, Russia has moved to "all-out war" against Ukraine's economy. Ukrainians may be facing their most difficult period of the war so far, writes The New York Times.
The economic damage from the Russian strikes is already running into billions of dollars. The war of attrition between Russia and Ukraine is escalating, engulfing the economies of both countries.
Ukrainian officials have called the current Russian campaign "all-out war" because of its focus on economic impact. Although Moscow has targeted commercial targets throughout the conflict, the scale of the attacks has increased significantly.
The escalation of Russian bombing is a response to Ukraine’s own efforts to undermine the Russian economy. Kiev has used its growing arsenal of home-made drones to strike at Russia’s oil industry — the country’s most valuable economic sector — as well as Russian e-commerce companies.
Russia has turned its attention to economic warfare as its battlefield offensive has largely stalled. Moscow aims to increase the price Europe pays for supporting Ukraine’s military effort. The rising costs are giving far-right parties in countries such as Britain, France and Germany an argument to oppose aid for Ukraine.
Last month, President Volodymyr Zelensky informed European allies that Ukraine needed $27 billion to cover its budget deficit - this comes after the European Union had already approved a loan package worth more than $100 billion earlier in the year.
Ukraine's economy ministry estimates that the economic damage from Russia's actions will reach approximately $10 billion by the end of the year. A significant part of these losses are indirect, stemming from lost sales, lost working days and logistical disruptions. On September 24, the European Bank for Reconstruction and Development (EBRD) lowered its forecast for Ukraine's economic growth this year from 2.2% to 1.5%. Some economists suggest that Ukraine could end the year with zero growth. The most difficult stage for the economy and the population
Dimitar Bogov, chief economist at the EBRD, said Ukraine was entering the "most difficult period of the war" due to labor shortages and increased shelling. He noted that while consumer spending power remained high, people "have no opportunity to spend".
Attacks on warehouses have caused goods to disappear from store shelves. Strikes on ports, rail rolling stock, border crossings and vessels have limited export opportunities. Recently, Russian forces have expanded the scope of their attacks, targeting internet infrastructure, which has cut off access to services for about 100,000 households.
In late August, Russia changed its tactics, increasing the duration of daily air raid warnings in major Ukrainian cities. Some businesses close during the attacks, leading to a drop in sales. The prolonged attacks - which can last all day - effectively paralyze the economy, as people are forced to spend significant amounts of time in shelters.
The Russian occupation forces plan their attacks taking into account seasonal factors. In the summer, they targeted grain storage facilities to destroy crop storage capacity - either before or during the harvest. The EU is urgently supplying Ukraine with mobile grain storage facilities; however, farmers are expected to experience difficulties repaying loans due to lost harvest revenues - a situation that is likely to have negative consequences for the banking sector. In the first year of the full-scale invasion, which began in February 2022, Ukraine's economy contracted by around 20%, but has been growing since then. A key area of growth is the defense technology sector, which is expected to more than double in size by 2024.
One of the main challenges is maintaining consumer spending levels, a task aided in part by the high salaries received by military personnel. While Ukraine is not facing a threat of famine, there is a risk of economic decline and a shrinking tax base, which is essential for financing the military effort.