EBRD has downgraded its forecast for Ukraine's economic growth

The EBRD has worsened its forecast for Ukraine's economic growth to 3.5% in 2025 and expects 5% growth in 2026 if an agreement on the cessation of hostilities is reached this year, the organization reported, writes UNN.

Ukraine's economy, which grew by 3.0 percent in 2024 despite the pressure of Russia's full-scale war, is forecast to grow by 3.5 percent in 2025 and strengthen further to 5.0 percent in 2026 if an agreement on the cessation of hostilities is reached this year

In the latest EBRD REP report, the previous forecast for Ukraine's growth in 2025 is revised downward by 1.2 percentage points. The September report last year expected growth of 4.7 percent in 2025.

"Although Ukraine entered 2025 with external financing secured for a year, it is facing a slowdown in economic growth and an acceleration of inflation due to the consequences of the war that began with the Russian invasion in February 2022," the EBRD explained.

The continuation of the war and massive Russian attacks on Ukraine's power infrastructure, the report states, have led to both a power deficit, forcing Ukrainians to pay high prices for imported electricity, and an acute labor shortage. "Real GDP growth has slowed noticeably from more than 5.0 percent in the first half of 2024 to around 2.0 percent in the second half of the year; the overall GDP figure for 2024 is estimated at 3.0 percent," the report states.

The resurgence of inflation in the second half of 2024, it is noted, was due to rising electricity prices, adjustments to regulated utility prices, rapid growth in real wages, and the depreciation of the currency against the US dollar after the loosening of the exchange rate peg in October 2023.

Annual inflation reached 12 percent in December 2024 and is likely to remain at a similar level in the first half of 2025 before falling to single digits by the end of the year

The central bank has responded by raising the key rate twice from December 2024 from 13.0 to 14.5 percent, with "further tightening of monetary policy likely" as noted.

Ukraine's budget deficit for 2025 is forecast at 19.4 percent of GDP and fully financed by external budget financing of $38.4 billion. This includes $13.7 billion from the EU under the Ukraine Facility, $22.0 billion from the G7 countries based on revenues from frozen Russian assets, and $2.7 billion from the IMF.

"The negative factors that affected growth in the second half of 2024 are likely to persist in 2025," the EBRD said.

On the positive side, it is reported that "the proven resilience and adaptability of enterprises, the well-functioning Black Sea trade corridor, strong stimulation of public consumption, and increased military procurement from domestic enterprises are expected to support economic growth".

Supplement

In September, the EBRD worsened its forecast for Ukraine's economic growth in 2025 by 1.3% to 4.7% due to damage to the energy infrastructure as a result of attacks by the Russian Federation.