Inflation will pick up in the coming months, but will begin to decline in the summer, according to the NBU’s updated forecast. By the end of 2025, inflation will decelerate to 8.7%. In 2026, it will return to the NBU’s target of 5%. Real GDP growth will accelerate slightly from the previous year, to 3.1% in 2025. In the coming years, the economy will grow by 3.7%–3.9% a year.
The baseline scenario of the NBU’s forecast is based on the assumptions that sufficient volumes of international financing would be maintained and that the economy’s functioning conditions would gradually normalize, which would, among other things, facilitate the return of part of forced migrants and promote growth in investment in the years that follow. A detailed analysis and a forecast of the macroeconomic situation can be found in the April 2025 Inflation Report.
Inflation is gradually running out of momentum and will begin to decline in summer
Over the months ahead, inflation will increase moderately in annual terms due to last year’s low comparison base. At the same time, inflation has all but run out of momentum, as evidenced by slower quarterly increases in the core CPI and prices for raw food products.
This summer, price increases for a wide range of goods and services are expected to begin to slow in annual terms. Thanks to the NBU’s monetary policy measures, the arrival of new and higher harvests into the markets, the improvement of the energy situation, as well as subdued price pressures from Ukraine’s main trading partners (MTPs), inflation will decelerate to 8.7% in 2025, and to its 5% target in 2026. Going forward, inflation will remain close to the target level.
The NBU will maintain its key policy rate at 15.5% and will move on to a policy easing only after the price surge has peaked and the risk of inflation becoming stuck in double-digit territory has waned
A hike in the key policy rate and changes to the operational design parameters of interest rate policy contributed to the growth in interest rates on term hryvnia instruments and to the greater protection of hryvnia savings from losing value to inflation. As a result, demand for hryvnia instruments grew, restraining FX demand from households. A prudent monetary policy will help consolidate these positive trends. The NBU anticipates that the measures it has taken, coupled with efforts to maintain the sustainability of the FX market, should prove sufficient to break the inflationary uptrend in the coming months and gradually reduce inflation to its 5% target within the policy horizon.
The weakening of price pressures will allow the NBU to return to its easing cycle of interest rate policy. According to the current macroeconomic forecast, the key policy rate will decrease to 14% in Q4 2025 (on average for the quarter). Meanwhile, considering the high level of uncertainty, which over past months has only risen, the NBU will respond flexibly to changes in the balance of risks to price developments and inflation expectations. If the risk of inflation settling in the double digits rises, the NBU will keep the key policy rate at its current level for longer than the updated macroeconomic forecast projects, and will be ready to take additional steps.
In 2025–2027, the economy will grow by 3%–4% a year, with large-scale investment programs and a brisk return of migrants potentially speeding the recovery up
Expected crop yield increases, reduced power shortages, large defense orders, investment in reconstruction, and robust consumption will support the economic recovery. However, GDP growth will be limited (3.1% in 2025 compared to 2.9% last year) by labor shortages, damage to gas infrastructure, and a cooling of external demand amid global trade tensions.
In 2026–2027, the economy will gain 3.7%–3.9% annually, boosted by ramped-up investment in reconstruction, the resumption of production, the rebuilding of infrastructure, and robust consumer demand. As security risks abate and economic conditions go back to business as usual, private investment will continue to grow and make up for the gradual rollback of economic incentives from the state.
Ukraine’s GDP is currently close to its potential level. The prospects for faster economic growth will primarily depend on increases in production factors, in particular the scale of capital investment and productivity, as well as on further developments in labor migration.
Economic recovery amid labor market mismatches will drive the growth in employment and wages
The problem of labor shortages – though somewhat less acute now that businesses have made efforts to attract people previously underrepresented in the labor market (students, the elderly, veterans, persons with disabilities) – remains relevant. Mismatches between the demand for and supply of skilled labor in the context of economic recovery will lead to further growth in real wages (by 3%–4% per year in 2025–2027).
Rising demand for workers as the economy revives will contribute to a gradual drop-off in the unemployment rate (to 10% in 2027). However, this process will be restrained by still-significant mismatches in the labor market, including war-induced changes in the structure of the economy, as well as uneven economic recovery across regions and sectors.
International aid and domestic borrowing will support the non-monetary financing of the budget deficit
This year, Ukraine will receive larger disbursements of financing from international partners than previously anticipated (USD 55 billion). These inflows should be sufficient to both cover this year’s budget deficit and build up a public-finance buffer for the next year, when the volume of foreign aid is likely to start declining. On top of that, the consolidated budget deficit excluding grants in revenues will gradually narrow within the forecast horizon (to 7% of GDP in 2027, down from 19% in 2025) thanks to the strengthening of the domestic funding base as the economy recovers.
On top of updated macroeconomic forecasts, the April Inflation Report features a number of special topics:
- Accuracy of Macroeconomic Forecasts
The NBU regularly publishes a macroeconomic forecast that guides its monetary policy decisions. The transparency of decision-making reinforces the public’s trust in those decisions. To this end, it is important to avoid systematic biased errors when forecasting and to factor in the interconnections between all sectors of the economy. The forecasts should also be relatively accurate, meaning at least as good as the average forecast made by other organizations.
Using four key indicators – inflation, GDP, current account balance, and the key policy rate – the NBU assesses the accuracy of its forecasts on a regular basis, comparing it to that of the estimates compiled by other institutions. This is an important accountability tool that improves forecasting methods.
A recent assessment shows the overall accuracy of the NBU’s forecasts in 2019–2024 being above average across all evaluated organizations. What is more, a comparison of estimates unadjusted for the length of the forecast period puts the NBU’s accuracy among the best for all indicators. The NBU’s forecasts are also free of any apparently consistent bias, despite the scale of uncertainty and new wartime shocks.
- U.S. Tariff Policy: Carpe Diem (Seize the Day)
The tariff hikes imposed by the U.S. in recent months have affected both its closest trading partners – Canada and Mexico – and countries with which the U.S. runs a trade surplus. To an extent, this imbues tariff policy with the properties of a bargaining tool. At the same time, Ukraine was handed the minimum tariff, of 10%, due to its trade deficit with the U.S. This gives Ukraine a certain competitive edge in its traditional export categories, such as food.
In addition, potential retaliation by the U.S.’s MTPs in the form of reciprocal tariffs will lay the groundwork for expanding Ukraine’s presence in existing markets, in particular the EU and China, and for tapping into new ones. Higher exports may partially offset the expected narrowing of demand from Ukraine’s MTPs.
- Sea Corridor’s Impact on External Trade: Higher, Faster, Better
At the outset of the full-scale war, Ukraine’s export potential sank, including due to the blockade of sea routes. For the economy, the launch of the sea corridor in August 2023 was a strategic milestone that greatly facilitated logistics and provided new export opportunities. First and foremost, it led to an increase in the volume of exported merchandise by drawing down on existing stocks, expanding the range of sea-shipped goods to include metals-and-mining and other products, and increasing the number of destinations.
The smooth operation of the sea corridor will boost exporters’ confidence, induce investors to scale up production, and make the cost of freight and insurance even lower. Second, greater trade opportunities helped the export prices of grain converge to world levels, allowing farmers to get a fair price for their products.
In the long run, however, a full resumption and growth of exports will require ensuring port infrastructure stability, further optimizing transportation, and expanding production potential.
- Tariff Warfare Fallout for Ukraine’s Economy and Monetary Policy
The NBU’s updated macroeconomic forecast assumes a moderate impact of global tariff wars on the Ukrainian economy. This is in part due to countries’ experience restructuring global value chains during the pandemic, the high resilience of Ukrainian producers to new challenges, and a number of other mixed effects that cancel each other out. Specifically, the short-lived uptick in logistical costs and the strengthening of the euro will be offset by the effects of lower oil prices amid a cooling global economy and by the decline in the prices of those imported goods that are rerouted away from the U.S. market and toward other countries.
For its part, in the face of looming general uncertainty and turbulence in global markets, the NBU will continue to uphold its principles of flexible inflation targeting to maintain trust in monetary policy and ensure macrofinancial sustainability. If trade standoffs escalate and FX wars engulf the world, the NBU will also be ready to provide appropriate exchange-rate flexibility to avoid an accumulation of significant external economic imbalances. Meanwhile, the NBU will maintain an active presence in the FX market, cover the structural FX deficit of the private sector, and ensure moderate two-way fluctuations of the exchange rate.
- Could Seizure of Frozen russian Assets Affect Euro’s Global Perception?
In January 2025, Ukraine received the first EUR 3 billion from the EU under the ERA Loans, which will be repaid from income on immobilized russian assets. This event drew no visible response from the FX or stock markets. Nor did previous efforts to agree this program in June and October 2024. However, even such limited steps did raise concerns at the ECB about a potential adverse impact on how the euro is perceived in the global financial system.
Currently, the euro confidently holds its ground in both international financial markets and global trade, second only to the U.S. dollar. Despite sanctions and restrictions on the EU’s trade with russia (including the freeze on russian assets), the euro’s share in trade settlements and financial transactions remains almost unfazed. A complete seizure of russian assets in favor of Ukraine is therefore likely to have little to no impact on third countries’ perception of risks associated with using the euro. A synchronized confiscation by all advanced countries would also restrain the capacity of emerging markets, including China, to diversify their reserves. Moreover, with turbulence being high, the euro may actually gain advantages over the U.S. dollar and other currencies.
- Updated Quarterly Projection Model to Guide Monetary Policy Decisions
The NBU operates a semi-structural Quarterly Projection Model (QPM) to build macroeconomic forecasts and analyze monetary policy. The current macro forecast was compiled using an updated version of the model – the QPM+. It takes account of the changes that have occurred in the Ukrainian economy in recent years, including the euro’s growing role and shifts in exchange rate policy regimes. Furthermore, the model directly incorporates various implicit targets for the components of consumer inflation. Going forward, the model’s improvements will draw on the IMF’s research and will focus, among other things, on adding a GDP decomposition by expenditure, on factoring in the balance of payments, and on quantifying the impact of FX market interventions.