The National Bank forecasts GDP growth of 4% in 2024 and 4.3% in 2025.
For the first time since the start of Russia's full-scale invasion, the Ukrainian economy is healthier than Russia's in some key indicators. However, Ukraine will face new challenges in 2025.
This is what the authoritative publication The Economist writes in a review article.
The publication says that the National Bank of Ukraine forecasts GDP growth of 4% in 2024 and 4.3% in 2025. The country's currency is stable, and interest rates at 13.5% remain close to their lowest in 30 months.
At the same time, in Russia, rates should soon reach 23% to stop the ruble from falling, banks look fragile, and GDP should grow by only 0.5-1.5% in 2025.
Will the energy sector withstand
The main challenge for the Ukrainian economy was the Russian attacks on energy infrastructure. However, as the publication notes, the country has become better prepared for such shocks. In particular, in December, the capacity of electricity imports from the EU was increased by almost a quarter, to 2.1 GW.
NBU Governor Andriy Pyshny predicts that coping strategies and ongoing repairs will reduce the average electricity deficit in the country to 6% of total demand in 2025 and to 3% in 2026.
Labor shortage
The second problem is the labor shortage. Since 2022, mobilization, migration and war have reduced the labor force by more than a fifth, to 13 million people.
Demand is high: the number of vacancies has reached 65,000 per week, compared to 7,000 in the first weeks of the war, but on average, a vacancy attracts only 1.3 applications, compared to 2 applications in pre-war 2021.
Budget deficit
Finally, the financing gap. In 2025, the budget deficit is projected to be around 20% of GDP, but almost the entire amount – $38 billion – will be financed from external sources.
In June, the G7 agreed on a $50 billion debt package for Ukraine, to be paid with interest earned on €260 billion ($273 billion) of Russian sovereign assets frozen in the West.
In early December, the United States transferred its $20 billion share to a World Bank fund that Ukraine can use for non-military purposes, although President-elect Donald Trump may seek to make it harder for Ukraine to access the money.
If the US stops supporting
Ukraine may be able to survive without American funds in 2025. Together with the 18 billion euro tranche that the EU agreed to provide under the previous program, contributions from other G7 members will fill the gap, predicts Dimitar Bogov of the European Bank for Reconstruction and Development.
Ukraine also has healthy foreign exchange reserves, forecast to grow to $43 billion by the end of 2024 – the equivalent of five months’ worth of imports.
But if America pulls out, Ukraine could find itself in a bind in 2026. Cash-strapped and politically weak EU governments, The Economist writes, could struggle to pay another large bill.
Ukraine’s ability to raise more on its own is limited: a proposal to raise a range of taxes this summer was withdrawn after strong resistance.
Recall that after the president signed the law on raising taxes, Ukraine saw a mass closure of individual entrepreneurs. Since the law came into force, 22.5 thousand entrepreneurs have ceased their activities.
Read also :
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- What will happen to the economy of Ukraine after the war: the S&P agency gave a forecast of the consequences