Illustrative photo: depositphotos.com

Ukraine's economy is projected to grow by 3.5% in 2025 and up to 5% in 2026, provided the conflict ends, according to the European Bank for Reconstruction and Development's (EBRD) latest Regional Economic Prospects (REP) report, published on February 27.

This growth follows a 3% increase in 2024, despite the ongoing full-scale war.

The EBRD has revised its previous forecast for Ukraine's GDP growth in 2025, reducing it by 1.2 percentage points from the 4.7% predicted in September 2024.

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The bank highlights several challenges facing Ukraine's economy:

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  • Energy infrastructure attacks: Russia's targeted attacks on Ukraine's energy infrastructure have led to electricity shortages and high import costs.
  • Labor shortages: Mobilization and population displacement have resulted in a severe labor shortage.
  • Economic slowdown: Economic growth decelerated from over 5% in the first half of 2024 to 2% in the second half, averaging 3% for the year.
  • Inflation: Inflation accelerated in the second half of 2024 due to rising energy prices, tariff increases, wage growth, and currency devaluation, reaching 12% by year-end. The EBRD expects inflation to remain high in the first half of 2025 before returning to single digits by the end of the year.

The National Bank of Ukraine has already raised its key policy rate twice since December 2024 – from 13% to 14.5%. Analysts predict further tightening of monetary policy.

Ukraine's budget deficit for 2025 is projected at 19.4% of GDP, fully covered by $38.4 billion in external financing, including $13.7 billion support from the EU through the Ukraine Facility, $22 billion from G7 countries (due to income from frozen Russian assets), and $2.7 billion the IMF.

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Despite these challenges, the EBRD identifies several positive factors supporting Ukraine's economy:

  • Business resilience: Ukrainian businesses have shown adaptability and resilience.
  • Black Sea trade corridor: Effective functioning of the trade corridor.
  • Government spending: High government expenditures, particularly on defense.
  • Military contracts: Expansion of military orders for Ukrainian enterprises.
Reference
The EBRD has provided over €5.4 billion to Ukraine since Russia's invasion in 2022, including €1.6 billion last year, focusing on energy security, critical infrastructure, food security, trade, and private sector support.

The bank plans to invest at least €1.5 billion in Ukraine this year and is prepared to double this amount post-war.

forecastEBRDeconomy of Ukraine