Less money, more risks: the NBU told what awaits the Ukrainian economy in the coming years
1 August 22:20
INFOGRAPHICS
In its July Inflation Report, the National Bank of Ukraine published an updated macroeconomic forecast for 2025-2027. The document outlines two scenarios for the development of the Ukrainian economy – a baseline and an alternative one – that take into account the dynamics of inflation, budget deficit, recovery of economic activity and monetary policy in the context of the war, "Komersant Ukrainian" reports.
The NBU’s updated macroeconomic forecast demonstrates cautious optimism based on realistic assumptions about the security situation, the extent of international support, and the sustainability of monetary policy.
Although the economic outlook remains dependent on external factors – primarily the military situation – the availability of two scenarios allows the government and businesses to better manage expectations and plan their actions for the medium term.
One thing is clear: the key to economic stabilization is a prudent policy, inflation control, fiscal discipline and support from investors, both domestic and foreign.
Baseline scenario: economy on a slow recovery path
The baseline scenario of the forecast is based on the assumption of a slow return to normal economic conditions. In 2025, a significant budget deficit of 22% of GDP is expected, which will gradually decline to 19% in 2026. In 2027, fiscal consolidation is expected to reduce the deficit to 12% of GDP. International financial assistance and domestic non-issue resources will remain the main sources of financing.
This level of fiscal support is driven, in particular, by the needs of the defense sector and social spending necessary for the stable functioning of the state.
Under the baseline scenario of the forecast, sufficient external support is expected to be received to finance budget deficits without issuance. However, most of the funding vital for maintaining defense in 2026-2027 remains unidentified
It envisages Ukraine’s further European integration, reforms, and cooperation with international partners, which will allow it to attract the necessary external financing. This year, a record amount of international financial support is expected – about $54 billion. Ukraine has already received almost USD 24 billion of this amount. As for the remaining $30 billion, Ukraine is still waiting for the next round of financing.
The largest receipts are expected under the ERA Loans program ($18 billion by the end of the year) and the Ukraine Facility ($8 billion). The amount of financing in the following years may vary depending on Ukraine’s needs for defense and reconstruction. Ukraine is expected to receive about $35 billion in external support in 2026 and $30 billion in 2027. One third of these funds have already been announced by partners, while negotiations are ongoing. It is assumed that such amounts should provide non-issue financing of the budget deficit in the context of slow economic normalization. If part of the planned external support is not received, additional measures will be needed to mobilize budget revenues, optimize expenditures, and increase market borrowing. If these measures prove insufficient, the likelihood of using emission financing will increase, which will have consequences for inflationary developments.
After a likely slight increase in inflation in July 2025 caused by unfavorable weather conditions (which will affect food prices), the NBU forecasts stable disinflation. Inflation is expected to decline to 9.7% in 2025, 6.6% in 2026, and reach the 5% target in 2027.
The NBU says it is ready to maintain tight monetary conditions until the inflation target is achieved. No key policy rate cuts are expected before the fourth quarter of 2025.
Real GDP growth will slow to 2.1% in 2025, due to the continued destruction of infrastructure and production capacity, logistics constraints, and a decline in labor potential due to migration.
In 2026, growth will accelerate slightly to 2.3%, and in 2027 to almost 3%. The main drivers of growth will be a gradual revival of private consumption and investment, in particular in the country’s reconstruction.
Read also: Ukraine’s GDP will grow by 2.1%: is this NBU forecast reliable?
Alternative scenario: faster risk reduction – faster growth
The NBU is also considering an alternative scenario that envisages a faster reduction in security risks. This is a conditional development trajectory under more favorable geopolitical and domestic conditions.
It is based on the assumption that the security situation will improve faster than in the baseline scenario, the budget deficit will be reduced more significantly, and labor market pressures will ease.
Real GDP growth will be higher than under the baseline scenario due to a faster recovery of economic potential. However, the trajectory of headline inflation differs only slightly: faster adjustments in utility tariffs are offset by lower core inflation due to lower production costs. Therefore, the easing of interest rate policy under both scenarios will be at the same pace.
In this case, the budget deficit will begin to decline more rapidly: to 13% of GDP in 2026 and 7% in 2027. This will help reduce dependence on external financing and at the same time increase confidence in public financial policy.
Despite the better preconditions, inflation dynamics will remain similar to the baseline scenario. Inflation is expected to reach 5% in 2027. This means that monetary policy will be eased at almost identical rates, and the NBU will remain cautious when making key policy rate decisions.
Reduced military risks will lead to increased consumption, private investment, and a gradual return of labor to Ukraine. As a result, the NBU estimates that GDP growth may accelerate to 3-3.5% annually in 2026-2027. This development will significantly improve overall macroeconomic conditions and strengthen fiscal stability.
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