EBRD lowers Ukraine’s 2025 growth forecast amid inflation, war impact

The European Bank for Reconstruction and Development (EBRD) has lowered its 2025 growth forecast for Ukraine’s economy, now expecting 3.5% growth instead of the previously projected 4.7%, the bank announced in a press release on Feb. 27.

The downgrade comes as inflation accelerates due to the ongoing war. In December 2024, inflation reached 12%, driven by rising electricity costs, utility price hikes, wage increases, and the weakening hryvnia against the U.S. dollar.

According to the EBRD, Russian attacks on Ukraine’s energy infrastructure and severe labor shortages have slowed economic growth from 5% to just 2% in late 2024.

“The continuation of the war and massive attacks by Russia on Ukraine’s electricity infrastructure have caused both power shortages—forcing Ukrainians to pay high prices for imported electricity—and acute labor shortages,” the EBRD wrote.

Despite these challenges, Ukraine’s economy still grew by 3% in 2024. The EBRD predicts growth could reach 5% in 2026, but only if the war ends this year.

To curb inflation, Ukraine’s central bank has raised interest rates from 13% to 14.5% since December and may increase them further. The bank previously projected inflation would peak at 15% by mid-2025 before falling to 8.4% by year-end.

Meanwhile, Ukraine’s 2025 budget deficit is expected to reach 19.4% of GDP, but the country has secured $38.4 billion in foreign aid to cover the shortfall. This includes $13.7 billion from the EU, $22 billion from G7 countries using frozen Russian assets, and $2.7 billion from the IMF.

Despite ongoing wartime challenges, the EBRD sees several factors supporting Ukraine’s economy in 2025: resilient businesses, a functioning Black Sea trade corridor, strong government spending, and increased military orders for domestic manufacturers.