War and damage to energy infrastructure remain key constraint factors for economic growth
In 2025, there are no prospects for a significant improvement of the economic situation in Ukraine. Independent analysts expect the Ukrainian economy to grow by an average of 3.7% y/y next year, the National Bank – by 4.3% y/y against the background of GDP growth in 2024 by 3.9%, as forecasted by the Ministry of Economy.
Despite the fact that now one can meet many acute assumptions that in the first half of 2025 the active phase of hostilities may stop, but analysts are still building their expectations based on the assumption that the war will last throughout the period. How the macroeconomic situation will look like in 2025, GMK Center studied.
Forecasts of Ukraine’s economic development for 2025
At the moment, analysts expect that the rate of economic growth next year will be about the same as in 2024: expectations of increase in Ukrainian GDP in 2025 are in the range of 2-4.9%. The state budget for 2025 includes a forecast of economic growth of only 2.7% y/y. This is clearly a conservative forecast, as international organizations and the NBU expect more. Independent analysts expect Ukraine’s GDP to increase by an average of 3.7% y/y in 2025, to $199.5 bln. – to $199.5 bln.
In turn, the National Bank in the fall improved its GDP forecast for 2025 from 4.1% to 4.3% y/y, compared to 4% y/y based on the results of the current year. The NBU expects that quarterly economic growth in 2025 will be as follows: in the I and II quarters – 2.3% and 3.4% q/q, and 4.6% and 6.3% q/q – in the III and IV quarters.
Over the past few months, international organizations have mostly adjusted their GDP growth forecasts for 2025 downward: the IMF to 2.5-3.5% from 5.5%, and the EBRD – to 4.7% from 6%.
The consensus forecast of non-governmental analysts shows such average estimates of other macroeconomic indicators of Ukraine in 2025:
- average annual inflation – 10% y/y, by the end of the period – 7.1% y/y;
- average annual hryvnia/dollar exchange rate – UAH 43.7, by the end of the period – UAH 45.7;
- state budget deficit – $37.9 bln;
- NBU reserves – $39.8 bln.
Forecasts of Ukrainian economy development in 2025 by analysts of non-governmental organizations
Source: Center for Economic Strategy
The above projections are based on the assumptions that the war will last throughout 2025 and that the maritime and land export corridors will function properly throughout the period.
Compared to 2022-2023, the economy has stabilized. In particular, at the end of last year, expectations of Ukrainian GDP growth in 2024 were in the range of 3-5%, and at the end of 10 months of 2024, Ukrainian GDP grew by 4.2% y/y. In previous years, the difference between the forecasts and the fact was more tangible.
At the same time, the overall slowdown in economic growth indicates the exhaustion of the recovery effect after the collapse of 2022 and leveling of the low base of comparison. Thus, the Ukrainian GDP in the second quarter of 2024 increased by only 0.2% compared to the previous quarter, while in the first quarter there was a more significant growth – by 1.2% compared to the fourth quarter of 2023. Recall that Ukraine’s GDP in 2023 grew by 5.3% y/y after a decline of 28.8% y/y in 2022.
Key economic risks for 2025
The key risks to economic development for 2025 at the moment are:
- Increase in electricity shortages due to further damage to power facilities. Back in the summer, the National Bank forecasted electricity shortages of 12% and 13% in Q4 2024 and Q1 2025, respectively. However, the Ukrainian energy infrastructure was seriously weakened after the November shelling and is extremely vulnerable to further intensification of missile strikes, which threatens to turn into a collapse of the entire energy system. The consequence for businesses could be a reduction in production and, to a lesser extent, services. In general, this risk is mitigated by accumulated stockpiles of power equipment and rapid restoration of power facilities, but ultimately it depends on the nature of the destruction/damage to the power infrastructure and the intensity of the missile attacks.
- Continuation of active hostilities throughout 2025, increasing the intensity of the war. The State Budget 2025 is based on the assumption that the war will last throughout the entire period, as there is no reduction in security and defense spending in the document. On the other hand, it would be strange if the country’s main financial document envisages a reduction in defense spending without substantial grounds for it. At the same time, some analysts are already trying to forecast the development of the economy in the post-war period and are studying scenarios that envision a reduction in security risks from the second half of 2025.
- Rising prices and accelerating inflation. This may result from higher taxes, increased budget expenditures, devaluation of the hryvnia (the state budget-2025 envisages an increase in the average annual exchange rate from 40.8 to 45 UAH/dollar) and other factors.
- Strengthening of labor shortage. The first trigger may be the growth of power shortages, which will lead to an increase in both internal migration and emigration, which will further complicate the problem of labor shortages. In addition, labor market imbalances will remain significant due to ongoing mobilization.
- Logistical risks – increased strikes on port infrastructure, renewed blocking of cargo traffic across the border with certain EU countries.
Supporting factors for the development of the Ukrainian economy
Despite the lack of clear preconditions for improvement, the economic situation in Ukraine next year will be slightly better and more predictable in some aspects. The budget deficit will drop to $38 bln next year, down from $44 bln in 2024. Total financing needs in 2025 may amount to $52 bln ($56 bln in 2024).
It is extremely important that the sources and forms of Western financial aid, on which all non-military expenditures of the state budget depend, look more firm and guaranteed than in the current year. The 2025 state budget stipulates that the expected external financing in 2025 will amount to $38.4 billion ($41.3 billion in 2024), while analysts expect $34.8 billion. The state budget deficit will be covered mainly by the EU Fund for Ukraine, the ERA loan from the G7 (about $50 billion should be received), proceeds from frozen Russian assets and government bonds.
At the same time, a sufficient number of factors are expected next year to support the already planned level of economic development.
“Ukraine’s real GDP growth will further accelerate to 4.3% in 2025 and 4.6% in 2026. Economic recovery on the forecast horizon will be facilitated by the preservation of soft fiscal policy, revival of domestic demand, which will be supported by wage growth, as well as the build-up of harvests, sustainable external demand for Ukrainian products and investments in the recovery, in particular, energy,” the National Bank said.
