Updated Macroeconomic Forecast for 2025

Forecast Scenarios and Key Assumptions

Russia’s war against Ukraine continues, and despite U.S. diplomatic efforts, the prospects for a full-scale ceasefire remain uncertain. Given this uncertainty, we maintain two forecast scenarios for 2025. The "ongoing war" scenario assumes that hostilities will persist throughout the forecast horizon, while the "ceasefire" scenario assumes a sustainable cessation of hostilities within the coming months, though parts of Ukrainian territory remain temporarily occupied.

At the same time, the energy ceasefire reached in March is largely holding, which has improved conditions in Ukraine’s energy sector. With no major new damage to infrastructure, the electricity deficit narrowed to nearly zero in April — down from an estimated 7% of demand in February and a peak of 16% in June 2024.

Thanks to this energy truce and the optimization of nuclear reactor maintenance schedules, the power shortfall in 2025 is expected to be smaller than previously projected, at around 5% of demand. However, due to significant damage to gas production infrastructure in February, Ukraine will likely need to import at least 4.2 bcm of natural gas in 2025.

Impact of Global Economic Shocks on Ukraine’s Economy

Despite the war’s devastation, Ukraine remains closely integrated into the global economy through trade. In 2024, foreign trade in goods accounted for 57% of GDP — only slightly down from 66% in the pre-war year of 2021.

A global recession — potentially triggered by U.S. tariff policy or other factors — could affect Ukraine primarily through commodity markets, as commodities comprise two-thirds of Ukraine’s exports. Additionally, as Ukraine continues to integrate into the EU, its economy is becoming more sensitive to fluctuations in the EUR/USD exchange rate.

Nonetheless, the global economy remains resilient and likely to avoid recession. As a result, commodity markets have responded to trade disruptions in a mixed but generally favorable way for Ukraine — prices for key Ukrainian exports have either remained stable or increased, while energy prices, which Ukraine mainly imports, have declined.

The stronger euro has had a negative effect on Ukraine’s trade balance and has added to inflationary pressures by raising prices of EU imports, particularly pharmaceuticals, household appliances, and vehicles. This impact may be partially offset by increased imports of cheaper goods from China and lower global energy prices.

In general, while Ukraine’s economy is exposed to global trends, the absence of signs of a global economic crisis suggests that external factors will have a less pronounced effect than the course of the war and the scale of international financial support.

Economic Growth

According to official data, real GDP grew by 2.9% y/y in 2024, following a 5.5% increase in 2023. The slowdown was driven by energy shortages due to Russian attacks, a growing labor shortage, and a weaker grain harvest following exceptionally favorable weather in 2023. At the same time, economic activity was supported by the continued operation of Black Sea ports, domestic consumption, and the expansion of local defense production.

Available indicators point to a slowdown in economic activity at the beginning of 2025, driven by renewed losses of industrial capacity and consumer anxiety amid heightened geopolitical tensions. While improved outlooks for the energy sector will partly offset the Q1 weakness, we revised our real GDP growth forecast for 2025 down by 0.5 pp to 2.5% in the "ongoing war" scenario. Growth will continue to be driven by private consumption and the development of domestic defense manufacturing, while a shortage of skilled labor will remain a key constraint.

In the event of a sustainable ceasefire, real GDP could increase by 3.5–5.5% y/y (0.5 pp lower than previously forecast), supported by improved business sentiment and the onset of large-scale reconstruction, partially offsetting a decline in defense spending.

Inflation

In April 2025, consumer prices rose 15.1% y/y, accelerating from 12.0% in December 2024 and up from the post-invasion low of 3.3% in March 2023. Despite the acceleration, several indicators point to a gradual easing in underlying inflationary pressure — particularly as the impact of elevated electricity costs fades. This underlying pressure is expected to continue easing, although labor market imbalances will continue to push up wage costs for businesses.

We expect annual inflation to begin declining in June–July, driven by continued easing of core pressures and a high base effect in the food segment from the second half of 2024. In the "ongoing war" scenario, we forecast inflation to slow to 8.1% y/y by the end of 2025, and to 9–10% y/y under the "ceasefire" scenario.

External Financial Support and Fiscal Indicators

Ukraine is projected to receive up to $58 billion in external financial aid in 2025 — significantly more than in previous war years. The primary source will be the G7-funded ERA program, financed by windfall profits from frozen Russian assets, which could deliver up to $40 billion by year-end. An additional $18 billion is expected from standard programs, including $2.3 billion from the IMF under the 4-year EFF program and €12.5 billion from the EU’s Ukraine Facility.

The IMF program envisions that around $10 billion will be held as a buffer for potential downside shocks related to the war, and another $7 billion earmarked for budget support in 2026–2027. Thus, approximately $40 billion in aid will be available to cover the 2025 budget deficit.

We estimate that the 2025 fiscal deficit may shrink to $40 billion (20% of GDP) from $44 billion in 2024, largely due to tax reforms enacted at the end of 2024, which are expected to generate an additional $3 billion in revenue. However, a mid-year budget revision is likely, with increased defense spending needed due to reduced U.S. military aid and rising enemy expenditures.

Funding sources for additional defense needs will depend on the IMF program, which requires financial assurances under both baseline and downside scenarios. Therefore, despite liquidity buffers, new revenue measures and increased domestic borrowing may be required to finance additional defense needs.

In the event of a sustained ceasefire, we estimate that the budget deficit could decline to $34 billion, or 16% of GDP.

Exchange Rate

In Q1 2025, the National Bank of Ukraine (NBU) allowed the hryvnia to appreciate by 1.4% against the U.S. dollar, to UAH 41.5/USD, after a prolonged period of managed depreciation. The appreciation reflected the NBU’s response to high inflation, strong external financing, a weakening dollar globally, and seasonally lower demand for foreign currency.

We expect the NBU to return to a controlled and gradual depreciation of the hryvnia in H2 2025 as inflation slows. Given the significant volume of financial support, we have raised our end-year NBU reserve forecast to $59 billion (from $41 billion) and revised our exchange rate forecast to UAH 44/USD by year-end (-4.4% y/y; previously UAH 45/USD).

A durable ceasefire would support slower depreciation of the hryvnia in the second half of the year, as underlying inflationary pressures rise and the balance of payments improves due to a slowdown in private capital outflows and continued external assistance. Going forward, exchange rate dynamics will hinge on external financing flows and private capital movements, while the trade deficit is expected to remain large due to structural shifts in the economy.