The European Bank for Reconstruction and Development (EBRD) has downgraded its economic growth forecast for Ukraine in 2025 to 3.5%. In September of the previous year, the bank had predicted growth of 4.7%.
According to the EBRD's forecast, the bank notes that Ukraine entered 2025 facing weak economic indicators and rising inflation. The bank revised its forecast for the country downward due to ongoing Russian attacks on the energy infrastructure, which continue to disrupt production.
"The growth forecast for Ukraine remains unchanged at 3 per cent for 2024, but has been revised down by 1.3 percentage points to 4.7 per cent for 2025, due to damage to its electricity infrastructure inflicted by Russian attacks weighing on production," the report states.
Negative factors: Although Ukraine entered 2025 with external financing secured for the year, it faces slowed economic growth and accelerated inflation due to the consequences of the war that began with Russia's invasion in February 2022, the EBRD highlights.
The continuation of the war and Russia's mass attacks on Ukraine's energy infrastructure have led to an energy deficit, forcing Ukrainians to pay high prices for imported electricity, as well as a severe labor shortage. Real GDP growth significantly slowed from over 5.0% in the first half of 2024 to about 2.0% in the second half of the year, with the overall GDP growth forecast for 2024 at 3.0%.
According to the bank, the recovery of inflation in the second half of 2024 was driven by rising electricity prices, adjustments to regulated utility tariffs, rapid growth in real wages, and currency depreciation against the US dollar following the weakening of the exchange rate peg in October 2023.
Annual inflation reached 12% in December 2024 and is likely to remain at a similar level in the first half of 2025 before falling to single digits by the end of the year, the bank predicts.
The bank forecasts that the negative factors impacting growth in the second half of 2024 are likely to persist into 2025. On a positive note, the proven resilience and adaptability of enterprises, the well-functioning Black Sea trade corridor, strong government consumption stimulus, and increased military purchases from domestic companies are expected to support economic growth.
