Ukraine’s Central Bank Forecasts 0.4% Economic Contraction in 2026 After Output Falls
Key Facts
The National Bank of Ukraine cut its forecast for real GDP in 2026 to a contraction of 0.4%, from a 1.8% growth forecast in July, according to the Associated Press. The revision comes as the economy has already contracted in the third quarter, with real GDP falling 0.5% in July–September, according to Ukrainska Pravda. The bank said the escalation of the war contributed to the decline and estimated that intensive Russian attacks on businesses alone reduced output by 1.9 percentage points. The shift from forecast growth to contraction offers a new estimate of the pressure facing production and trade sectors. The bank also raised its annual inflation forecast for 2026 to 12.5% from 10% in its previous forecast.
The bank attributed the decline in activity to the blockade of ports and attacks on production facilities and logistics, saying that metal mining and iron ore companies suffered the largest losses. It added that performance also deteriorated in other industrial sectors, as well as in trade and agriculture. Figures from the Kyiv School of Economics show mounting pressure on exports and production: goods exports fell 19% year on year in August to $2.4 billion, their lowest monthly level since July 2023. In the same month, metal exports fell 48.1%, metal production declined 48.6%, and total industrial production contracted 6.1%. These indicators reflect the effect that disruption to ports and production facilities is having on Ukraine’s ability to export industrial goods.
The Kyiv School of Economics forecast that goods exports would remain at $2–3 billion a month in the coming months. The institute said that reopening the ports alone would not restore metal exports to previous levels unless production capacity is rebuilt and the risk of attacks is reduced. It estimated that the economy would contract 0.3% in 2026, followed by a further contraction of 0.6% in 2027, warning that continued Russian strikes on energy infrastructure increase the risk of a deeper decline. This outlook differs from the World Bank’s October update, which projected growth slowing to 1.2% in 2026 from 1.8% in 2025. The World Bank cited labor shortages, higher energy costs, and damage to production, ports, warehouses and transport networks as factors weighing on growth and constraining exports.
On prices, the governor of the National Bank of Ukraine linked inflation dynamics to higher fuel prices resulting from the war in the Middle East and to intensive Russian attacks on logistics targets inside Ukraine. Raising the inflation forecast to 12.5% adds pressure to the activity outlook as industrial sectors contract and export routes are disrupted. The Kyiv School of Economics’ assessment also showed that only 1.7% of companies plan to increase hiring over the next three to four months, compared with 8.4% planning to cut it. The institute expects companies to begin laying off workers in the first quarter of 2027. Its estimates point to further weakness in the labor market if production and export pressures continue.
The National Bank of Ukraine expects a slow recovery in growth in 2027–2028, supported by public and private investment in defense industries, the localization of weapons production financed by the Ukraine Support Loan, and projects to restore critical infrastructure. Financing the recovery remains a broad challenge: the World Bank estimated reconstruction and recovery costs at about $588 billion over the next decade, or nearly three times estimated nominal GDP for 2025. The World Bank identified securing external financing for 2027 as a major source of uncertainty, with negotiations continuing over needs that have not been fully covered. The bank’s forecast links defense investment and infrastructure rebuilding to a return to growth in 2027–2028. The Kyiv School of Economics’ forecasts, meanwhile, point to a further contraction in 2027, with energy and export risks still present.