IMF updates forecast for Ukraine: war may last until mid-2026
Kyiv • UNN
The IMF has presented an updated negative scenario for Ukraine with a forecast of war by mid-2026. According to this scenario, GDP is expected to fall by 2.5% in 2025 and the external financing deficit is expected to be $177.2 billion.
The International Monetary Fund has updated its negative scenario for Ukraine in case of a more intense war. According to the negative scenario, the war will last until mid-2026. UNN reports this with reference to the report of the IMF.
Details
Under its baseline scenario, the IMF continues to assume that the war will end by the end of 2025.
The economic impact of the winter energy shortage may be more limited than previously expected due to business investment in domestic generation capacity, increased import potential and business investment in domestic generation capacity, increased potential for imports from Europe, and efforts to repair and install additional generation capacity and distribution networks.
The program's negative scenario continues to assume a longer and more intense war. The IMF has updated the negative scenario, keeping the assumption that the war will last until mid-2026, although now the shock to the economy is expected in the first quarter of 2025.
As a result, real GDP growth will be weaker than in the baseline scenario, i.e., -2.5% in 2025 (compared to 2.5-3.5% in the baseline scenario).
The total deficit of external financing under the negative scenario is USD 177.2 billion compared to USD 148 billion under the baseline scenario.
The projections of key macroeconomic variables under this scenario are much worse than under the baseline, but little changed from the Fifth Review and include: a contraction in real GDP followed by a slow recovery and higher and more persistent inflation; a deterioration in the current account balance excluding grants, with international reserves remaining below 100% of the ARA criterion by 2027; and an overall deficit excluding grants that remains above 20% by 2026.
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In general, both the baseline and negative scenarios are still subject to exceptionally high uncertainty, in particular regarding the trajectory of the war and its consequences for postwar recovery:
The war could intensify or last longer, negatively affecting economic performance and policy implementation and posing risks to the medium-term outlook. Further attacks on energy infrastructure, exacerbated by the harsh winter, and unfavorable demographics pose a particular risk on this front
It is noted that international support may be short-lived. The program's scenarios assume that Ukraine will continue to receive significant financial and security assistance in the future. If the willingness of Ukraine's partners to continue support begins to wane, either Ukraine will face pressure caused by abrupt policy changes or suboptimal responses to fill the resulting funding gap, or the trajectory of the war itself could deteriorate.
An earlier end to the war, according to the IMF, could have a wide range of consequences. A potential peaceful settlement could, on the one hand, lead to a positive scenario, driven by existing international support and acceleration of reforms, a stronger economic recovery, and medium-term potential that could be driven by a faster return of migration and private investment flows anchored by EU accession. On the other hand, despite the earlier end of the war, the security situation may not stabilize in the short term, or the final damage from the war may be even more significant than currently anticipated. In this case, there are risks of adverse economic and social consequences, including a decline in private investment, increased migration, and a slowdown in the pace of reforms, leading to a slower or incomplete post-war recovery.
