Ukraine’s economy, which grew 3 per cent in 2024 despite the pressures of Russia’s full-scale war, is forecast to grow 3.5 per cent in 2025 and strengthen further to 5.0 per cent in 2026 provided that an agreement to suspend fighting is reached this year, says a flagship report by the European Bank for Reconstruction and Development (EBRD), published today.
The EBRD’s latest Regional Economic Prospects (REP) revises downwards its previous forecast for Ukraine’s 2025 growth by 1.2 percentage points. Last September’s REP had seen growth of 4.7 per cent for 2025.
Although Ukraine has entered 2025 with its external financing secured for the year, it is facing a slowdown in economic growth and accelerating inflation due to the impact of the war that began with the Russian invasion of February 2022, explains the report, entitled Weaker momentum amid fragmenting trade and investment.
The continuation of the war and massive attacks by Russia on Ukraine’s electricity infrastructure have caused both power shortages, forcing Ukrainians to pay high prices for imported electricity, and acute labour shortages. Real GDP growth slowed markedly from over 5 per cent in the first half of 2024 to around 2 per cent in the second half of the year; the overall GDP figure for 2024 is estimated at 3 per cent, the report says.
Resurgent inflation in the second half of 2024 was driven by rising electricity costs, a correction in regulated utility prices, rapid real wage growth, and currency depreciation against the US dollar following relaxation of the exchange rate peg in October 2023.
Annual inflation reached 12 per cent in December 2024 and is likely to remain at a similar level in the first half of 2025 before falling back to single digits towards the end of the year.
Ukraine’s budget deficit for 2025 is projected at 19.4 per cent of GDP and will be fully financed through US$ 38.4 billion in external budget financing. This includes US$ 13.7 billion from the EU under the Ukraine Facility, US$ 22.0 billion from the G7 countries based on revenue from frozen Russian assets and US$ 2.7 billion from the IMF.
The negative factors that weighed on growth in the second half of 2024 are likely to persist in 2025, EBRD experts say.
On the positive side, the proven resilience and adaptability of businesses, the well-functioning Black Sea trade corridor, strong public consumption stimulus and increasing military procurement from domestic industries are expected to support economic growth.
