The European Commission has downgraded the economic forecast for Ukraine: an economist named three reasons
15 November 2024 17:35
EXCLUSIVE
The European Commission has updated its economic forecast for Ukraine, which reflects the current state and prospects of the country’s economy in the context of the war. According to the document, the expected GDP growth in 2024 has been improved to 3.5% compared to the previously forecasted 2.9%. However, the forecasts for 2025 have been significantly downgraded – instead of 5.3% growth, only 2.8% is now expected.
As noted in the analysis, Ukraine’s economy demonstrates resilience despite ongoing and intense attacks on critical infrastructure. Export potential, high defense spending, and consumer demand remain the main support factors. In the first half of 2024, the country’s real GDP grew by 5.0% year-on-year. However, further slowdown is expected due to resource constraints.
In 2025, inflation is projected to reach 9.2% due to rising energy prices. At the same time, inflationary pressures are expected to begin to ease in 2026, when the energy market stabilizes and the resource shortage decreases.
The war remains the key factor behind the economic slowdown. According to the report, reconstruction, which was supposed to be the driving force behind the recovery, is being postponed. Active reconstruction efforts are now expected to begin no earlier than 2026, when the necessary conditions for economic recovery are in place. Until then, constraints such as labor shortages, energy shortages, and reduced export opportunities will weigh heavily on economic activity.
Overall, the European Commission forecasts that Ukraine’s real GDP growth will slow to 2.8% in 2025, but will reach 5.9% in 2026, provided that the security situation improves and business confidence is restored.
However, the forecasts are accompanied by high uncertainty. The report emphasizes that further escalation of the war may lead to additional losses in production, an increase in the number of displaced persons and an increase in the budgetary burden.
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In an exclusive commentary to , economist Andriy Novak confirms that uncertainty about the war and, consequently, any other aspects of social development has a strong impact on economic forecasts, and not in a positive way.
“So far, there is no sign of the war ending, which means that in 2025, hostilities will also continue, and of unknown intensity. This is one of the factors that leads to the deterioration of this forecast,”
– says the expert.
The economist also agrees with another factor highlighted by European officials, namely the current state of the domestic economy. According to him, it practically does not allow us to talk about any tangible development.
“Ukraine is forced to spend most of its budget expenditures on defense,”
– he reminds.
At the same time, the economist believes that the European Commission “left out of the picture” the key factor that ultimately forced them to revise this forecast, and on which other factors largely depend. We are talking about Donald Trump’s victory in the US presidential election.
“The main reason is the fear of reducing aid to Ukraine after Donald Trump wins the US presidential election. Because, at least during his election campaign, he repeatedly emphasized that he would reduce aid to Ukraine and force Ukraine to negotiate with Russia. These fears are one of the main reasons for the deterioration of the forecast,”
– said Andriy Novak.
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