The NBU’s forecast is traditional: inflation is rising, but will soon start to decline
25 April 2025 16:40
Inflation in Ukraine will continue to rise in the coming months, but will begin to decline in the summer. The National Bank of Ukraine made the forecast in its latest inflation report, "Komersant Ukrainian" reports.
According to the NBU’s forecast, inflation will slow to 8.7% at the end of 2025 and return to the NBU’s 5% target in 2026. Real GDP growth will accelerate slightly year-on-year to 3.1% in 2025. In the following years, the economy will grow by 3.7-3.9% per year.
The baseline scenario of the NBU’s forecast is based on the assumptions that sufficient international financing will remain available and that the economic environment will gradually normalize, which will, in particular, facilitate the partial return of forced migrants and investment growth in the coming years.
The inflationary momentum is already running out, and inflation will start to decline in the summer
The inflationary momentum is almost exhausted, according to the NBU. This is evidenced by the slowdown in quarterly growth in the core consumer price index and prices for raw food products.
“It is expected that in the summer, the annualized price growth rate will begin to decline for a wide range of goods and services. Thanks to the NBU’s monetary policy measures, new higher harvests, improved energy situation, and moderate price pressure from Ukraine’s main trading partners (MTPs), inflation will slow to 8.7% in 2025 and to the target of 5% in 2026. In the future, it will remain near the target level,”
– the National Bank writes.
The key policy rate will be reduced to 14%
The increase in the key policy rate to 15.5% contributed to the growth of interest rates on hryvnia time instruments and strengthened the protection of hryvnia savings from inflationary depreciation, the NBU said. This correspondingly increased the demand for hryvnia instruments and limited the demand for foreign currency. A prudent monetary policy will help to consolidate these positive trends. And since inflation is forecast to decline, the key policy rate will be lowered.
“The easing of price pressure will allow the NBU to return to the cycle of easing interest rate policy. According to the current macroeconomic forecast, the key policy rate will decrease to 14% (on average per quarter) in the fourth quarter of 2025”
NBU
If the NBU’s positive inflation forecast does not materialize, the regulator promises to keep the key policy rate at the current level or even raise it even further.
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The economy will grow by 3-4% per year
According to the NBU, the economic recovery will be supported by the expected increase in harvests, a reduction in the electricity deficit, significant defense orders, as well as investments in recovery and sustainable consumption. However, GDP growth will be limited (3.1% in 2025 compared to 2.9% last year) due to labor shortages, damage to gas infrastructure, and cooling external demand amid the global trade confrontation. But it will get better:
“In 2026-2027, the economy will grow by 3.7-3.9% per year on the back of increased investment in reconstruction, restoration of production and infrastructure, and robust consumer demand. As security risks decline and economic conditions normalize, private investment will continue to grow and compensate for the gradual reduction of economic incentives from the government.”
NBU
Currently, Ukraine’s GDP is close to its potential level. Prospects for accelerating economic growth will depend primarily on increasing production factors and on the further development of migration trends, the National Bank says.
Wages will grow, there will be enough work
The problem of labor shortages is still relevant, although entrepreneurs have begun to hire students, pensioners, and other previously unwanted workers.
“Mismatches between the supply and demand for skilled labor in the context of economic recovery will lead to further increases in real wages (by 3-4% per year in 2025-2027). Increased demand for workers as the economy recovers will contribute to a gradual reduction in the unemployment rate (to 10% in 2027).”
NBU
However, imbalances in the labor market will persist, according to the NBU.
International partners will help
This year, Ukraine expects to receive more aid from its international partners than previously expected – $55 billion. The NBU believes that this should be enough to finance this year’s budget deficit and to form a buffer for next year, when the volume of foreign aid is likely to decline. In addition, the budget deficit is planned to be reduced from 19% of GDP in 2025 to 7% of GDP in 2027.
The NBU’s forecasts are about flexibility
The National Bank of Ukraine is quite flexible in its forecasts, as the uncertainty of geopolitical, macroeconomic, military and other situations creates a fairly wide forecasting field. Therefore, the NBU responds quickly enough to macroeconomic changes in the country and regularly adjusts its forecasts.
For example, last fall, the NBU expected inflation to start slowing down this spring. Now, the regulator expects this slowdown to occur in the summer. The NBU also forecasted inflation at 6.9% in 2025, but the current forecast is for 8.7%.
They still hope to return to the 5% inflation target in 2026. So, we are waiting for new forecasts.
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