Ukraine can avoid postwar recession and achieve accelerated growth – National Bank
Sustained high defense spending, ambitious EU integration plans, and the reintegration of veterans into civilian life will allow Ukraine to avoid recessionary trends and achieve accelerated growth after the war, according to First Deputy Governor of the National Bank of Ukraine (NBU) Serhiy Nikolaychuk.
"We expect that we will indeed be able to avoid recessionary dynamics and, after the end of active hostilities, even see an acceleration of economic growth, despite a negative fiscal impulse caused by cuts in defense spending," he said in an interview with Interfax-Ukraine.
Nikolaychuk acknowledged that international experience shows many countries fall into prolonged recessions after wars due to the need for fiscal consolidation following years of high military spending.
"In our view, this international experience is less relevant for Ukraine," the NBU deputy chief emphasized.
According to him, the NBU expects that defense spending will remain high: while lower than during full-scale war, security risks will persist, meaning the military and defense capacity must remain robust.
"We expect that our international partners, primarily European ones, will provide a significant share of financing for Ukraine's army, which in reality will be protecting not only Ukraine but the entire European continent," Nikolaychuk said.
He added that a second factor is Ukraine's ambitious EU integration agenda, which makes the country's economic potential over the coming years highly attractive in the context of integration and the opportunities it will bring for Ukrainian business.
"Therefore, we can count on both continued inflows of official financing and private capital," the deputy governor explained.
He also pointed out that unlike the post–World War II or Balkan postwar experiences, the reintegration of former soldiers into civilian life is expected to proceed at a much faster pace in Ukraine, given that over the past 20–30 years technological advances have enabled veterans to be integrated into civilian life much more quickly.
"To say this will be an easy path would be an exaggeration. It will, in fact, require significant effort across all areas I've mentioned, from both society and government. But in my conviction, these factors will allow us to chart our own course," Nikolaychuk concluded.
The deputy governor explained the NBU's three downward revisions to its macroeconomic forecast this year as stemming from growing security risks – above all, the sharp increase in drone and missile attacks – as well as a second consecutive year of adverse weather.
"A macroeconomic forecast is not something in and of itself or in a vacuum. It is our tool for policymaking. Under conditions of extremely high uncertainty, we constantly adjust these forecasts, but at the same time they provide us with a very useful benchmark – showing the context, direction, and scale in which we need to adjust our monetary and other policies to ensure macro-financial stability," Nikolaychuk said.
He also explained the decision in the July Inflation Report to return to publishing two development scenarios as a response to extremely high uncertainty.
"In our case, under normal circumstances we prefer publishing a single scenario, which simplifies communication with society, journalists, and experts. But in certain cases, when the level of uncertainty is too high and we are forced to choose between two baseline scenarios until the very last moment, we prefer publishing both," the deputy governor of the NBU explained.
According to him, the choice of a negative scenario as the baseline was guided by three main arguments: its slightly higher probability, the conservative approach, and the government's assessment that next year's budget will be built on a more conservative scenario.
As reported, the NBU has revised its macroeconomic forecast three times this year: GDP growth for 2025 was downgraded from 4.3% to 2.1%, for 2026 from 4.6% to 2.3%, while inflation for this year was revised upward from 6.9% to 9.7%. In July, the NBU also cut its 2027 growth forecast to 2.8% from 3.9%.