Ukraine was the second-ranking Soviet republic in industrial and agricultural production, after Russia. Long known as the “breadbasket of Europe,” Ukraine traditionally had a highly developed agricultural sector because of its vast, fertile lands. It generated more than one-fourth of the total agricultural output of the Soviet Union. Industrial development was a high priority of the Soviet government. In the 1930s Ukraine experienced a rapid and extensive industrial upsurge, mainly in the mineral-rich Donets’k and Kryvyy Rih regions. Because of Soviet development, which emphasized heavy industry, Ukraine possesses one of the most industrialized economies of Europe. However, its industries are highly inefficient and in pressing need of modernization.

The collapse of the Soviet economy in 1990–91 and a subsequent period of extreme currency inflation in Ukraine brought great hardship to most of the population. Despite early hopes that Ukrainian economic independence, with the concomitant end to the transfer of funds and resources to other parts of the Soviet Union, would alleviate the declining economy and standard of living, Ukraine entered a period of severe economic decline. Daily life in Ukraine became a struggle, particularly for those living on fixed incomes, as prices rose sharply. Citizens have compensated in a number of ways: more than half grow their own food, workers often hold two or three jobs, and many acquire basic necessities through a flourishing barter economy.

After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR. Ukraine depends on imports of energy, especially natural gas, to meet some 85% of its annual energy requirements. Shortly after independence in late 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output in 1992-99 fell to less than 40% the 1991 level. Loose monetary policies pushed inflation to hyperinflationary levels in late 1993. Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. Now in his second term, President KUCHMA has pledged to reduce the number of government agencies and streamline the regulation process, create a legal environment to encourage entrepreneurs and protect ownership rights, and enact a comprehensive tax overhaul. Reforms in the more politically sensitive areas of structural reform and land privatization are still lagging. Outside institutions - particularly the IMF - have encouraged Ukraine to quicken the pace and scope of reforms and have threatened to withdraw financial support. GDP in 2000 showed strong export-based growth of 6% - the first growth since independence - and industrial production grew 12.9%. As the capacity for further export-based economic expansion diminishes, GDP growth in 2001 is likely to decline to around 3%.