What is the danger of this “death spiral” for economic stability, and most importantly, how can it be avoided? This question is posed by Ukrainian economist Oleksiy Kushch in his analysis for the Ukrainian weekly Zerkalo Nedeli.
Economists call stagflation a “death spiral”, i.e. a combination of high galloping inflation and falling GDP, which leads to a kind of decision zugzwang, when the result of each move is a “loss of a piece”,” the author explains.
And he specifies that inflation should be fought with tight monetary policy, money supply contraction and high interest rates. And recession should be fought with soft monetary policy, expansion of money supply and low interest rates. As we can see, stagflation blocks these solutions: we have to sacrifice either the fight against inflation or GDP growth.
In support of his thesis, the economist cites the following data: in 2024, Ukraine’s GDP will grow by 2.9% after a 5% recovery in 2023 and a 28% collapse in 2022. That is, the effect of growth on the basis of a low statistical base in 2022 has already run out, there was a slowdown in the growth rate of gross product.
This conclusion is supported by the data of the last quarters. In the fourth quarter of 2024, Ukraine’s GDP fell by 0.1%. There was a decline in industrial production.
At the beginning of this year, the trend continued, the article notes. According to the NBU Inflation Report for April 2025, real GDP grew by 0.5% y/y in the first quarter of 2025. “This is actually about zero economic growth with the risk of transition to zero or even negative dynamics in the second quarter of this year,” the author states.
At the same time, the consumer price index for goods and services in 2025 in April amounted to 14% against the same period last year.
In these conditions, the Ukrainian economy is still saved from sliding into stagflation by foreign aid. But the recent trade wars and the threat of recession in the EU (especially in Germany) put this factor of support for the Ukrainian economy in the category of extreme uncertainty. “During the global crisis, everyone saves himself first of all, rather than helping others,” the economist remarks.
He argues that the real verdict for the government’s economic model was the unemployment rate of 15% (in war conditions it should not be higher than 2-3%, the author believes) and the utilization of the country’s economic potential by only 70%.
The conclusion in the article is very pessimistic: if no urgent measures are taken, the Ukrainian economy will move to cooling by summer. And further development of the global trade war may lead to a serious crisis.
If the “death spiral” does engulf the Ukrainian economy, it will have to be treated with “shock therapy” – a collapse in real incomes of the population and a sharp increase in prices and tariffs.
