Between Decline and Growth: How Critical Is This Year’s GDP Decline for Ukraine’s Economy?
29 May 13:41
ANALYSIS FROM 
Ukraine saw a decline in real GDP in the first quarter of this year. "Komersant Ukrainian" investigated whether this indicates a recession and gives cause for concern.
Gross domestic product, or GDP, is, as explained by the Ministry of Economy, an integrated indicator of a country’s economic development. It reflects the results of residents’ productive activities within the country’s economic territory and is measured by the total value of goods and services produced by them. Put simply, it is what is produced and sold within the country over a specific period—a month, a quarter, or a year.
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And so, in May, the State Statistics Service of Ukraine reported that in the first quarter of 2026, this figure was 0.7% lower than in the fourth quarter of 2025. A comparison with the first quarter of last year also does not favor the first three months of this year—a decline of 0.5%. And there is an explanation for these figures.
Negative Result
The first three months of the year will be remembered, of course, not for a recorded decline in GDP, but for severe frosts, intense enemy shelling, the destruction of energy infrastructure, and problems with electricity supply. All the more so because it was precisely these factors that had a cumulative impact on economic activity and production efficiency in the country, which ultimately affected the overall economic outcome. Therefore, the State Statistics Service data did not come as a great surprise to experts. Economist Ihor Chalenko continues.
“The decline in GDP has entirely objective causes. Recent developments in the energy sector, the increase in enemy attacks on our logistics—which in turn particularly affects the interests of farmers, as there were certain delays in the export of products—all of this led to the decline in GDP. But this is a situational decline in GDP,” the expert notes.
Given the rather harsh winter, during which Russia shelled Ukrainian energy facilities, the negative GDP growth in the first quarter is a perfectly natural consequence. This is emphasized by Dmytro Krukovets, head of macroeconomic analysis at the KSE Institute.
“For now, the situation is fairly under control. That is, we are not in a recession, because a recession is, by definition, two consecutive quarters of decline. And there are currently no signs that we will see a decline in the second quarter,” the expert believes.
This winter has been particularly difficult for energy, mining, and transportation companies. According to the economic monitoring report prepared monthly by the Institute for Economic Research and Policy Consulting, these three sectors saw the sharpest decline in production indicators during the first three months of the year compared to the same period last year. For example, in the energy sector, due to extensive damage to energy infrastructure caused by Russian attacks, electricity and gas production and distribution fell by 16% in January, 14% in February, and 15% in March. In the extractive industry, there was a decline of approximately 17% in January, 14% in February, and 2% in March. In the transportation sector, due to shelling of infrastructure, a decline of 10.8% was recorded in January, approximately 14% in February, and 10% in March. The March figure was also affected by rising fuel costs.
These three sectors are key. And a vast number of small and large businesses are experiencing problems in their operations. One need only recall this year’s power supply restrictions and how they affected the operations of various enterprises—increasing costs and limiting production. Dmytro Krukovets, head of macroeconomic analysis at the KSE Institute, continues.
“Businesses had to switch to alternative power generation, which is both more expensive and reduces business margins. In other words, the profit per unit of product produced decreases because it is more expensive to produce that product using a generator. Take refrigerators, for example, which are actually supposed to run constantly, or exhaust fans in restaurants—they’re supposed to run constantly, but they aren’t, and as a result, goods spoil. Spoiled goods mean write-offs. Write-offs, in turn, mean losses,” explains Dmytro Krukovets.
As a result, according to the expert, businesses in the winter showed a tendency not to increase or even to cut back on production, since it was simply unprofitable to continue manufacturing products.
Positive Changes
Following the decline in the first quarter, real GDP growth was already recorded in April of this year. In fact, as early as March, the Ministry of Economy noted a shift in the trend from negative to positive: to a minimal 0.1–0.2% on an annualized basis. In April 2026, this trend strengthened: GDP growth compared to April of last year already stood at 1.0%. This is the assessment of the Institute for Economic Research and Policy Consulting. The energy and transportation sectors slowed their decline, stopping at 7%. The extractive industry grew by 1%. Trade and the manufacturing sector also supported the positive trend: in these sectors, real value-added growth is estimated at 4%.
The government was quick to share the good news as well. A few days ago, its head, Yulia Svyrydenko, reported that GDP growth in April was driven by domestic trade, the extractive industry, and the manufacturing sector. The defense sector, the food industry, and the production of goods for the restoration of energy infrastructure also contributed to the overall success.
Economist Ihor Chalenko also traditionally links hopes for further GDP growth to the agricultural sector.
“If we consider that a substantial harvest of around 60 million tons of grain is expected this agricultural season, there is, in principle, potential for the agricultural sector to drive further growth. It is good that our defense-industrial complex is developing and is one of our key export sectors. At the same time, we must maintain a certain balance and create the most optimal conditions for business operations in general, rather than simply pursuing further fiscalization under the guise of de-shadowing or other similar measures,” the expert emphasizes.
Dmytro Krukovets, Head of Macroeconomic Analysis at the KSE Institute, for example, highlights the importance of developing the government’s “5-7-9” business lending program.
“The fact that companies are taking out cheap loans and purchasing equipment also has an impact on GDP. It would certainly be worth improving and expanding the scope of the ‘5-7-9’ programs and grants for businesses. Because our problem with supply is currently greater than with demand. And therefore, redirecting funds specifically toward a program to support supply would be a wise move,” the expert emphasizes.
The Ukrainian defense industry could and should become a driver of economic growth. That is the view of Dmytro Krukovets.
“The defense sector will most likely be one of the key sectors in Ukraine’s economy. It is already approaching the agricultural sector in terms of importance. And, for example, arms exports could help domestic businesses find new buyers, learn to operate in this foreign market, and utilize their capacity, since capacity utilization depends heavily on decisions by the Ministry of Defense,” the expert notes.
At the same time, economist Ihor Chalenko believes that one should not have high expectations for GDP growth amid the war. Although the country’s economy is gradually regaining the ground lost since the war began. As a reminder, the GDP decline in 2022 reached 29.2%. Dmytro Krukovets, Head of Macroeconomic Analysis at the KSE Institute, continues.
“We haven’t returned to the GDP level of early 2022—that is, before the full-scale war—and are still about 10% below it. And this, by the way, is actually a pretty good result for a country at war, because we’ve physically lost a lot of territory where factories producing goods were located. We lost a significant portion of the working-age population, as many people migrated, while some remained in the occupied territories and, consequently, are not fully participating in the economy. That is why we lost nearly 30% of real GDP. “But then we really saw this upward trend: plus 5.5%, plus 3%, plus 2%. And if the war ends in 2026, as many currently assume, then there will be 3%, 4%, and possibly even 5% during the recovery,” the expert believes.
To better understand the potential and prospects for the development of the Ukrainian economy, Dmytro Krukovets advises not only analyzing production indicators by industry and sector but also paying attention to surveys of business representatives. According to the expert, what entrepreneurs think about their future activities, how positive their attitude toward the future is, and how ready they are to expand and take out loans—all of this will help understand where the Ukrainian economy is headed and how it is faring.
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