European Commission cuts GDP growth forecast for Ukraine to 1.6% in 2025, 1.5% in 2026

MOSCOW. Nov 18 (Interfax) - The European Commission has reduced its GDP growth forecast for Ukraine in 2025 to 1.6% from 2% projected in May, and for 2026 to 1.5% from 4.7%, Ukrainian media said, citing a European Commission report.

Economic growth remained subdued in the first half of 2025, energy supply was disrupted, and agricultural output fell, the report said. The prolonged crisis is set to weigh on domestic productive capacity throughout 2026 with growth projected at 1.5%, before rebounding to 4.7% in 2027 when reconstruction efforts are expected to start in earnest, it said.

Last year, the European Commission projected GDP growth in Ukraine at 2.8% in 2025 and at 5.9% in 2026.

Domestic demand is expected to remain the primary driver of growth, as private consumption is set to benefit from rising real wages, while continued defense spending and ongoing emergency repairs and reconstruction are expected to drive investment growth, it said.

Inflation is projected to rise from last year's 6.5% to to 13.1% in 2025, driven by surging food prices and energy and labor costs, but is expected to ease to 9.8% in 2026. The European Commission's inflation forecast for Ukraine issued in May was 12.6% and 7.7%, respectively.

Persistent spending needs are expected to keep the public deficit elevated throughout the forecast horizon through to 2027. This year, it is expected to increase to 23.8% of GDP from 18.1% of GDP in 2024.

"Nonetheless, new fiscal measures-including efforts to reduce informality in customs, a temporary increase on the tax on bank profits to 50%, and the introduction of a tax on digital platforms-are expected to yield around 1.8% of GDP in additional revenues. Coupled with continued high nominal GDP growth, the deficit is projected to narrow to 21.2% of GDP in 2026," the report said.

The European Commission also expects Ukraine's exports of goods and services to drop by 2.4% and imports to grow by 5.8% in 2025. Next year, exports are expected to recover slightly to 2.9%, as agricultural output normalizes, but strong import demand for energy, coal, and materials related to defense and reconstruction is set to keep import levels elevated, leading to 5.3% growth.

Large-scale displacement, together with conscription, has significantly reduced the labor force since the start of the crisis, resulting in acute shortages and pushing average nominal wage growth above inflation in H1 2025. Labor shortages are expected to remain pronounced due to slow reintegration, the lasting impact of the crisis on the workforce, and persistent regional and skills mismatches. As a result, the unemployment rate is set to remain high over the forecast period, but to continue its gradually declining path: from 14.8% in 2024 to 13.3% in 2025 and to 12.9% in 2026.

As reported, in late October the National Bank of Ukraine (NBU) cut its GDP growth forecast for 2025 to 1.9% from 2.1%, citing power shortages, damage to gas production facilities and workforce shortages. It also cut this forecast for 2026 from 2.3% to 2%. However, the NBU improved its inflation forecast for 2025 from 9.7% to 9.2%, keeping it at 6.6% for 2026.