Exclusive What dynamics of Ukrainian economic development does the NBU predict?

The National Bank expects a deterioration in the security situation in the coming quarters and a low harvest in 2025

The macroeconomic situation in Ukraine not only remains difficult due to the ongoing war, but is also deteriorating due to the intensification of shelling of critical infrastructure and negative expectations regarding the new harvest.

GMK Center quotes the speech of Serhiy Nikolaychuk, Deputy Head of the National Bank, at the online event “What awaits the economy in 2025 and beyond?”, held by the Center for Economic Strategy.

Economic growth and influencing factors

The National Bank expects Ukraine’s economy to grow by 2.1% in 2025, which is in line with consensus forecasts. For 2026-2027, growth of 2-3% is forecast, depending on developments on the front lines and the restoration of normal conditions for the economy to function.

However, growth will be hampered by the consequences of the war, unfavorable weather conditions, and climate change, which affect the agricultural sector. In this regard, the forecast indicators for grain, oilseed, and other crops have been revised, which has also affected GDP expectations for 2025.

Impact of the security situation

Our current forecast is based on the assumption that security risks will remain high and takes into account the recent intensification of Russian attacks on the front lines and in the rear. We believe that the security situation in the coming quarters will be worse than we estimated in April.

We see a need for higher defense spending in this year’s budget. Our scenario already takes into account changes to this year’s state budget, which provide for an increase in defense spending of UAH 400 billion.

We also believe that these expenditures will remain high next year. Therefore, we have revised our forecast for the budget deficit in 2026 to 19% of GDP. To cover it, it will be necessary to attract about $35 billion in external financing. Ukraine already has confirmed commitments amounting to $22 billion, so it is necessary to find another $13 billion. In 2026-2027, financial needs will grow even more – to $75 billion, of which $37.4 billion currently has no confirmed source of funding. This is the problem and task we need to work on to avoid a deterioration in the financial and economic situation.

The discount rate will remain high

The National Bank has decided to keep the discount rate at 15.5%. This decision is aimed at supporting the stability of the currency market and curbing inflation expectations. Maintaining tight monetary conditions allows us to continue the disinflationary trend and ensure that inflation returns to the target level of 5%.

According to the updated forecast, the discount rate will remain at the current level until the fourth quarter of 2025, after which it is expected to gradually decline. The current trajectory is higher than the April estimates, due to changes in the macroeconomic environment.

The situation in the external sector

We have revised our forecasts for international reserves downward, and the current account deficit and certain components of the financial account will also be worse than in our previous estimates. Due to increased imports, particularly of energy equipment and gas in preparation for the heating season, as well as lower harvests and losses from the termination of EU trade preferences, the current account is expected to deteriorate.

The cancellation of part of the duty-free access of Ukrainian agricultural products to the European market will lead to export losses estimated at $700 million in 2024. At the same time, the possibility of reorienting part of the supplies to alternative markets is taken into account.

Main risks

The main risks to the macroeconomic forecast remain military action, potential destruction of production capacity, and the risk of not receiving international financial assistance. The NBU will continue to monitor these risks and take the necessary measures to ensure macrofinancial stability.