Economic growth remains limited as war continues
According to estimates by the Institute for Economic Research and Policy Consulting (IER) Kyiv, real GDP grew by 3.5% in 2024, driven by domestic demand but constrained by destructions in the energy sector. In a joint forecast of the IER and the German Economic Team (GET), we project economic growth to reach 2.9% in 2025 and 3.2% in 2026. Private consumption and investment will be key drivers. However, export growth will remain constrained, while imports are expected to expand.
Nevertheless, the current account is projected to remain balanced in 2025, supported by the planned USD 50 bn financing under the G7 Extraor-dinary Revenue Acceleration Loans (ERA) initiative, be-fore returning to a deficit in 2026. Inflation is forecast to remain in double digits on average in 2025. How-ever, in 2026, with an improved agricultural harvest and a slowdown in energy price growth, inflation is ex-pected to approach the National Bank’s target range.
Growth remains modest
The Ukrainian Statistical Service has revised the economic growth figure for 2023 upwards. Ukraine’s economy expanded by 5.5% in 2023, compared to the previously reported 5.3%. For 2024, further growth of 3.5% is estimated by the IER. The joint forecast by the IER and GET projects growth of 2.9% in 2025. This is a down-ward revision from the 3.4% projected in the summer edition, reflecting updated assumptions on the war, which is now expected to remain intense until mid-2026, despite ongoing attempts to arrange ceasefire.
Click the button below to load the content of Datawrapper.
Additionally, weak industrial performance and agricul-tural conditions limit growth prospects. Similarly, growth in 2026 is projected at 3.2%. Overall, Ukraine’s economy is expected to remain 17% below its pre-war level in real terms in 2026.
Supply side
Agricultural and industrial growth is expected to remain subdued. A slightly higher crop harvest is projected for 2025, albeit from a low base in 2024, with further improvements in 2026 (gross value added: 2025: +1.4%, 2026: +3.4%). Industry is set to experience a gradual recovery thanks to better logistics and continued defence contracts leading to moderate growth in 2025 and 2026. However, electricity supply constraints will continue to limit expansion (+2.4%, +4.1%). The trade and transport sectors are projected to expand, supported by the operation of Odesa and Danube ports and a gradual recovery in consumer demand, which will boost domestic trade. Transport will also benefit from increasing passenger flow, including the gradual return of displaced persons, as well as rising e-commerce activity.
Demand side
Private consumption and investment will be the main drivers of growth. Consumption is expected to increase, driven by real wage growth as well as pension indexation. Moreover, a slight positive net inflow of migrants in 2026 is projected to further support private consumption. Gross fixed capital accumulation growth (+9.5%, +9.1%) will be driven by the defence sector and urgent repair needs, particularly in the energy sector. However, significant security risks and financing constraints will continue to limit private investment growth.
Click the button below to load the content of Datawrapper.
Exports are expected to remain weak in 2025. Although the Ukrainian Sea Corridor will enhance logistics, lower grain stocks at the end of 2024 will contribute to a decline in exports in 2025, with some recovery projected in 2026 (-0.5%, +3.8%). Import growth will be driven by increased domestic demand for goods. Net exports are projected to be negative in 2025, but the export recovery should support a weak net export growth in 2026.
Fiscal outlook
Ukraine’s financing needs for 2025 and 2026 are expected to exceed projected international assistance, creating potential budget constraints. On the one hand, financing under the IMF programme and the Ukraine Fa-cility is expected to continue, given Ukraine meets its reform commitments in a timely manner. Additionally, full disbursements under the ERA can be assumed, as the G7 countries (including the US) have already taken key steps to approve this funding. However, a portion of these funds is earmarked for defence expenditures. This means that if bilateral military assistance remains insufficient, budgetary allocations for non-defence spending will be even more constrained, as funds might need to be partially diverted. In 2026, the financing gap is expected to widen, as only a limited amount of funding will be available under the Ukraine Facility, and the remaining ERA funds. As a result, additional resources will be required. Considering that ERA funding will not be recorded as part of state debt though it will add to contingent liabilities, the level of state and state-guaranteed debt is projected to decline from 92% of GDP in 2024 to 85% in 2026.
External sector
As discussed, real exports are expected to remain weak, although in US-dollar terms, exports will be supported by a gradual improvement in export prices. Still, exports recovery will remain limited. Goods imports will be driven by energy sector repairs and defence equipment. In US-dollar terms, imports were close to pre-war levels in 2024. Also, the balance of services will remain in deficit. The expiration of the gas transit agreement is ex-pected to have only a minor negative impact on services exports. Transfers and remittances, which include net wage income and secondary transfers, remain a key component. These figures also incorporate external grants to the state budget. In line with the National Bank’s approach, ERA funds are expected to be recorded as transfers under the current account. As a re-sult, the current account, which showed a deficit of USD 13.4 bn (-7.1% of GDP) in 2024, is projected to balance in 2025 before reverting to a deficit of USD 12.5 bn (-5.7%) in 2026.
Inflation
Inflation accelerated to 12.0% in December 2024, driven by unfavourable harvest conditions, growing labour shortages, rising energy prices for business (including imported electricity), and a gradual recovery in demand. In 2025, inflation is projected to average 12.5%, with a year-on-year rate of 8.5% in December. Inflation is expected to peak in the first half of the year before gradually decelerating, partly due to the National Bank of Ukraine’s (NBU) tighter monetary policy stance. In 2026, inflation is projected to slow to 6.2% in December, as cost pressures ease due to tight monetary policy, base effects, and moderate demand recovery.
Click the button below to load the content of Datawrapper.
Conclusion
Economic forecasts for 2025 and 2026 remain subject to significant uncertainty. A faster-than-expected improvement in the security situation, the launch of large-scale reconstruction efforts, a quicker recovery of seaborne exports, or additional financing—such as funds from frozen Russian assets—could improve the economic outlook. However, downside risks remain, including a potential deterioration in security conditions.
Private investment will be a key driver of the medium-term recovery and reconstruction effort. However, the large uncertainty is a clear obstacle. So, for lifting medium-term economic growth perspectives, reliable guarantees are needed.
Oleksandra Betliy is Leading Research Fellow at the Institute for Economic Research and Policy Consulting.
Vitaliy Kravchuk is Senior Research Fellow at the Institute for Economic Research and Policy Consulting.
This newsletter is based on the joint macroeconomic forecast
and the upcoming Economic Monitor for Ukraine.
