EBRD lowers Ukraine economic growth forecast for 2025 from 4.7% to 3.5%

MOSCOW. Feb 27 (Interfax) - The European Bank for Reconstruction and Development (EBRD) has revised down its forecast for Ukraine economic growth in 2025 to 3.5% from 4.7% projected in its September 2024 report, Ukrainian media said.

The EBRD expects the Ukrainian economy to see 5% growth in 2026 if the crisis is ended this year.

"Although Ukraine has entered 2025 with its external financing secured for the year, it is facing a slowdown in economic growth and accelerating inflation due to the impact of the crisis," media outlets quoted the EBRD as saying in its February 26 report, titled 'Weaker momentum amid fragmenting trade and investment'.

Ukraine is now facing both power shortages, forcing Ukrainians to pay high prices for imported electricity, and acute labor shortages, the bank said. Real GDP growth slowed markedly from over 5% in the first half of 2024 to around 2% in the second half of the year, with the overall GDP figure for 2024 is estimated at 3%.

Resurgent inflation in H2 2024 was driven by rising electricity costs, a correction in regulated utility prices, rapid real wage growth, and currency depreciation against the U.S. dollar following relaxation of the exchange rate peg in October 2023, the EBRD said.

"Annual inflation reached 12 per cent in December 2024 and is likely to remain at a similar level in the first half of 2025 before falling back to single digits towards the end of the year," it said.

According to the bank's estimates, Ukraine's budget deficit for 2025 is projected at 19.4% of GDP and will be fully financed through $38.4 billion in external budget financing. This includes $13.7 billion from the European Union under the Ukraine Facility, $22 billion from the G7 countries, and $ 2.7 billion from the International Monetary Fund.

The negative factors that weighed on growth in H2 2024 are likely to persist in 2025, it said.

As previously reported, in its Global Economic Prospects published on January 17, the World Bank downgraded its forecast for Ukraine's GDP growth in 2025 to 2% from 6.5% in June's report, but raised it for 2026 from 5.1% to 7%.

The National Bank of Ukraine also changed its forecast in late January, lowering its estimate of real GDP growth in 2025 to 3.6% from 4.1%. Ukraine's 2025 budget is based on the expectation of 2.7% GDP growth.