The European Commission has worsened its forecast for Ukraine's economic growth for the current year. Rapid growth may only begin in 2026.
Points of attention
- The European Commission has revised its forecast for Ukraine's economic growth in 2025 to 2.0%, indicating a challenging outlook for the country's economy.
- Factors such as the military conflict and shifts in the energy market are expected to further slow down economic activity in Ukraine, impacting the national budget, inflation, and exports.
- A sharp increase in energy and labor costs is predicted to affect inflation, leading to a forecasted rise to 12.6% in 2025, before easing in 2026.
The forecast is disappointing: the EC on the Ukrainian economy
The GDP growth forecast for 2025 has been downgraded to 2.0% from 2.8% last November. The forecast for 2026 has been downgraded to 4.7% from 5.3%.
In 2025, economic activity is projected to slow further to 2.0% as the war continues to put severe pressure on Ukraine's production potential and business sentiment.
According to the EC's expectations, exports are set to weaken, reflecting subdued industrial production, especially in energy-intensive sectors affected by high energy prices, and the closure of the Pokrovsk coal mine, a key supplier to the steel industry.
Inflation is forecast to rise to 12.6% in 2025 due to sharp increases in energy and labor costs, before easing in 2026 as supply-side pressures ease.
Stronger economic growth is projected from 2026, which will contribute to further improvements in revenue collection, while a gradual shift in spending from military needs to recovery and reconstruction will contribute to a significant reduction in the deficit.
According to the EC, after sustained growth that lasted until early 2024, Ukraine's economy began to lose momentum in mid-2024, reflecting increased Russian attacks on critical infrastructure, weaker agricultural harvests due to adverse weather conditions, and acute labor shortages that continued to constrain economic activity.
According to the State Statistics Service, Ukraine's GDP growth slowed to 2.9% in 2024. The GDP growth forecast included in the 2025 budget is 2.7% per year.
The National Bank of Ukraine (NBU) in April worsened the forecast for Ukraine's real gross domestic product (GDP) in 2025 to 3.1%.
In April, the IMF downgraded its forecast for Ukraine's economic growth in 2025 to 2.0%, compared to 2.5% in the October forecast.
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