EC downgrades forecast for Ukraine's GDP growth in 2025 to 2%, in 2026 - to 4.7%

The European Commission (EC) has worsened the forecast for Ukraine's GDP growth in 2025 to 2% from the 2.8% expected in November, and in 2026 - to 4.7% from 5.9%, according to a document published on Monday.

"In 2025, economic activity is forecast to decelerate further to 2%, as the war continues to weigh heavily on Ukraine’s productive capacity and business sentiment. Exports are set to weaken, reflecting subdued industrial output— particularly in energy-intensive sectors affected by high energy costs—and the closure of the Pokrovsk coal mine, a key supplier to the steel industry. Agricultural exports are also expected to decline due to lower stocks following the poor 2024 harvest caused by adverse weather conditions. At the same time, strong import demand for energy, coal, and materials related to defense and reconstruction is set to keep import levels elevated, resulting in a negative contribution of net exports to GDP growth," the report says.

According to the forecast, exports in 2025 will increase by only 1.8%, while in 2026 - by 11.4%, while import growth will be 5.5% and 6%, respectively.

"Domestic demand is expected to remain resilient, driven by robust investment growth underpinned by sustained defense spending and ongoing emergency repairs and reconstruction, particularly in the energy sector. Private consumption is also projected to remain a key growth driver, although at a slower pace, as elevated inflation continues to erode households’ purchasing power," it reads.

"Looking ahead to 2026, real GDP growth is projected to accelerate to 4.7%, under the technical assumption that conditions for a gradual increase in early reconstruction efforts will be in place from the start of the year. The recovery is expected to be driven by rising reconstruction investment, easing export bottlenecks, and improving economic confidence, which should outweigh the dampening effect of a gradual decline in defense-related spending. The current account is expected to remain firmly negative throughout the forecast horizon, reflecting a large trade deficit and a weakening secondary income balance as international grants are replaced by loans," it says.

The deficit in foreign trade in goods, according to the EC's expectations, will increase this year to 16.2% of GDP from 15.9% of GDP last year, and will decrease to 14.8% of GDP next year, the balance of payments deficit will accordingly increase this year to 13.2% of GDP from 8.1% of GDP last year, and will fall to 11.5% of GDP next year.