Ukraine's 2025 economic growth forecast drops from 4.7% to 3.5%
The European Bank for Reconstruction and Development lowered its 2025 growth forecast for Ukraine to 3.5%, down from 4.7% in September 2024, Interfax-Ukraine reports on Feb. 27.
According to an EBRD report, while Ukraine entered 2025 with a year’s worth of external financing secured, it faces slowing economic growth and rising inflation due to the ongoing war that began with Russia’s invasion in February 2022.
The report highlighted that Russia's attacks on Ukraine’s electricity infrastructure have led to electricity shortages, forcing Ukrainians to pay high prices for imported electricity, and acute labor shortages. Real GDP growth slowed significantly from over 5% in the first half of 2024 to around 2% in the second half, with overall GDP for 2024 estimated at 3%.
The EBRD noted that inflation in the second half of 2024 was driven by rising electricity costs, adjustments to regulated utility prices, rapid real wage growth, and the depreciation of the hryvnia against the U.S. dollar after the loosening of the exchange rate peg in October 2023.
"Annual inflation reached 12% in December 2024 and is expected to remain at that level in the first half of 2025, before falling to single digits by the end of the year," the report predicted.
The EBRD estimated that Ukraine’s budget deficit for 2025 will reach 19.4% of GDP, which will be fully financed by external budget funding of $38.4 billion. This includes $13.7 billion from the EU under the Ukraine Facility, $22 billion from the G7 countries based on frozen Russian assets under the ERA mechanism, and $2.7 billion from the IMF.
The report noted that the negative factors affecting growth in the second half of 2024 are likely to continue into 2025. However, on the positive side, the EBRD expects business resilience, a well-functioning Maritime Corridor, strong public consumption, and increased military procurement by domestic enterprises to contribute to economic growth.
In January, the World Bank lowered its 2025 GDP growth forecast for Ukraine to 2% from 6.5% in its June 2024 report, while improving the forecast for 2026 to 7% from 5.1%.
The NBU also adjusted its forecasts, lowering the real GDP growth projection for 2025 from 4.3% to 3.6%, while the 2025 state budget is based on a GDP growth forecast of 2.7%.
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