The fall in Ukraine's real GDP in March 2022 amounted to 45% compared to the same period last year, the state budget deficit this year could reach 16-26% of GDP, Dragon Capital investment company predicts.

"According to preliminary estimates, in March, real GDP fell by 45% year-on-year. The blocking and mining of the Black Sea water area by the Russian naval forces significantly narrowed the opportunities for exports and imports. Almost 5 million Ukrainians were forced to leave the country," the analytical report says.

"According to our estimates, the territories in the east and south of Ukraine, which remain occupied by Russian troops by mid-April, generated approximately 12% of GDP in pre-war times. Economic activity in the rest of the country remains subdued, although it is gradually recovering," the company's chief economist, Olena Belan, believes.

So far, the occupying forces have destroyed or significantly damaged a small number of large industrial facilities, which allows for a partial restoration of production volumes, Dragon Capital notes. At the same time, without the resumption of access to the Black Sea, Ukraine will be able to export less than half of the pre-war volumes.

The investment company predicts that if fighting continues within the territory occupied by Russian troops by mid-April, and the risk of missile strikes in the rest of the territory remains high, the Ukrainian economy will shrink by about a third and is unlikely to grow next year. At the same time, it is specified that a sustainable ceasefire in the coming months will accelerate economic recovery and reduce the annual decline in GDP to minus 25% year-over-year, followed by a 6.5% growth in 2023, analysts believe.

In the scenario where the ceasefire agreement is accompanied by the opening of the Black Sea to commercial shipping, Ukraine will be able to increase export volumes, estimated to 70% of the pre-war level (due to lost production capacity). In this case, the fall in GDP this year will be 22%, and economic growth next year could reach 10%.

According to analysts, one of the biggest challenges is the implementation of the state budget, which is complicated by a drop in tax revenues and an unprecedented expansion of the budget deficit.

Dragon Capital estimates an average monthly budget deficit at $4 billion during the fighting and allows the gap to narrow to $2.5-3 billion "with a sustainable ceasefire agreement reached."