The war in the Middle East will add 1.5% in the baseline scenario and 3.0% in the alternative scenario to inflation, and will slow Ukraine's GDP by 0.3 p.p. and 0.6 p.p. respectively, according to the quarterly Inflation Report from the NBU, UNN reports.
Ukraine has experienced a complex shock from the war in the Middle East: this conflict simultaneously puts pressure on domestic prices, restrains economic growth, and deepens the trade deficit,
The report notes that the revision of geopolitical priorities by key partners creates both new opportunities and risks for Ukraine. "Higher energy prices increase the aggressor's financial resources, but this does not solve its accumulating structural problems," the report states.
"The NBU's baseline forecast scenario assumes a gradual easing of tensions in the Middle East from the end of the second quarter and a decrease in the price of Brent crude oil to $80/bbl by the end of 2026. The alternative scenario assumes a longer war and oil prices not lower than $100/bbl until the end of 2026," the National Bank indicated.
The total contribution of direct and secondary effects from the war in the Middle East to annual inflation in Ukraine will be 1.5 p.p. in the baseline scenario and 3.0 p.p. in the alternative one. The negative impact on real GDP growth is estimated at 0.3 p.p. and 0.6 p.p. respectively,
In case of increased risks to price dynamics, as stated, "the NBU will be ready to promptly tighten monetary conditions." "This can be implemented both through interest rate policy instruments and other mechanisms. Such a comprehensive approach will allow for the timely neutralization of inflationary risks and the preservation of macro-financial stability," the regulator emphasized.
Fuel and gas price hikes amid the Middle East war will affect inflation - NBU19.03.26, 15:02
Other key indicators
Key indicators of the NBU Inflation Report:
- inflation will accelerate to 9.4% in 2026, and will begin to decline from next year: to 6.5% at the end of 2027 and to 5% in 2028;
- economic recovery will slow to 1.3% this year, but will accelerate in subsequent years to 2.8–3.7% per year;
- the budget deficit will gradually narrow from 19% of GDP this year to 18% in 2027 and 11% in 2028. International aid will remain the key source of budget deficit financing.
- The NBU assumes that Ukraine will receive about $53 billion from international partners in 2026, $42 billion in 2027, and $22 billion in 2028. International reserves will be sufficient to maintain the stability of the foreign exchange market – $60–67 billion in 2026–2028.
The baseline forecast scenario, the NBU indicated, takes into account the current consequences of shelling and destruction and sufficient volumes of external financing. It is based on assumptions of a gradual normalization of conditions for the functioning of the Ukrainian economy, the temporary nature of the acute phase of the war in the Middle East, and, accordingly, a decrease in oil prices from the second half of 2026.