GDP, Inflation and Exchange Rate. What Awaits the Ukrainian Economy In 2025

Ukraine is entering the fourth year of the war, and the issue of economic stability remains no less relevant than in the first year of the war, when the economy just found itself in a state of internal and external shock of the war. It is worth saying that the difference between the first and fourth years of the war exists, and it is quite profound. So, let's talk about the prospects for 2025 in the context of the economy.

However, let's start by summing up.

The situation in the Ukrainian economy in 2024 was characterized by a set of positive and negative development factors.

Negative factors include:

• the persistence of high military risks when doing business;
• a sharp reduction in the energy armament of the gross domestic product due to attacks on energy infrastructure;
• a labor market crisis due to mobilization practices;
• Russian attacks on logistics and transport infrastructure, in particular in the Odessa ports;
• grain crop failure and loss of sown areas due to occupation and military operations.

Positive factors include:

• maintaining relative exchange rate and price stability;
• maintaining the stability of the banking system;
• stable receipt of external financing from partner countries;
• increasing growth rates to 4% of gross domestic product;
• implementation of the revenue part of the state budget.

The set of risks and opportunities listed above demonstrates a change in the main emphasis in the composition of war risks.

If in 2022 these were internal logistical and external military shocks, exacerbated by the mass flow of refugees (abroad and within the country), then in 2024 the main emphasis was on the factors of energy shortage and the state of the labor market as a result of prolonged mobilization practices.

Let's focus on the state of the energy sector separately.

In the pre-war year 2021, approximately 155 billion kWh of electricity was produced, net exports amounted to about 2 billion kWh, and about 120 billion kWh was consumed in the country.

To restore these indicators, electricity production needs to be increased by 50% from the current level.

Before the war (2021), the installed capacity in Ukraine for generating electricity was at the level of 54 GW, of which approximately 8–10 GW was renewable electricity (solar power plants, wind power plants, bio).

Since 2022, electricity production has fallen to 115 billion kWh, consumption to 90 billion kWh, net exports to 1 billion kWh. The reduction in production was 26%, and consumption was 25%. This approximately corresponds to the level of decline in gross domestic product in 2022 (up to 29%).

However, in 2023 we observe opposite trends. Namely, this year electricity production decreased to 105 billion kWh, and consumption decreased to 85 billion kWh. Not exports, but net imports of electricity of 0.4 billion kWh were recorded. In relative terms, electricity production decreased by 9%, and consumption by 6%. At the same time, statistics determined a growth in gross domestic product of 5.3%. It is worth noting that the situation is quite atypical, because electricity consumption decreased by 6%, and gross product increased by 5%.

The factor of low energy intensity of Ukraine's gross domestic product will remain a key restraining factor for new industrialization. Any rapid growth of industrial production, including in the military-industrial complex segment, will come up against the obstacle of electricity production against the background of low throughput capacity of infrastructure links with the European energy system (limited import volumes).

In second place among the risk factors, one should consider the further crisis of the labor market, while this crisis has a cumulative nature, which is formed under the influence of two diametrically opposed tendencies.

On the one hand, Ukraine has a significant unemployment rate, namely almost 15% of the economically active population, according to the methodology of the International Labor Organization (before the war it was 9%, in the first year of the war 20–25%). On the other hand, there is a significant shortage of highly qualified labor in the market, and this trend is characteristic of both the private and public sectors.

Thus, the National Bank of Ukraine notes: “…according to the United Nations, the number of migrants outside Ukraine continued to grow and amounted to 6.8 million people as of November 18, 2024, the number of internally displaced persons stabilized at 3.6 million people in October (according to the International Organization for Migration), the number of those who returned to their permanent places of residence (since the beginning of the full-scale invasion) amounted to 4.3 million people. According to the United Nations, the share of employed people among both migrants and internally displaced persons is gradually increasing (up to 45 and 43%, respectively, according to a survey in August 2024). According to a survey of Ukrainian migrants in Poland in July 2024, the majority (68%) have a job, 77% of their children attend Polish schools.” 

The National Bank of Ukraine estimates the net outflow of the population in 2024 at 500 thousand people, and in 2025 at 200 thousand. A net inflow of the population from abroad is possible only in 2026 at a level of no more than 500 thousand people.

Thus, the first year of the war consists of a logistics shock, a crisis of budget expenditures, revenues and budget deficits, and a shock of the flow of refugees.

The economy adapted to the state of war by overcoming the risks of macro-financial stability (slowing down inflation and devaluation of the hryvnia), stabilizing the budget process due to external financial support and reversing trends with internally displaced persons. Logistical risks were also significantly reduced.

In 2024, the main accents in the economy were energy risks associated with the destruction of part of the energy infrastructure as a result of missile strikes by the Russian Federation.

At the same time, in 2025, the main focus in the economy may be the labor market crisis, as intensified mobilization measures will continue, and this will be due to the withdrawal of the economically active population from the economic system. The risk of an energy crisis will also remain at a dangerous level for the economy (without the possibility of quickly overcoming these challenges, and these negative trends may even intensify).

In addition, the macro-financial assistance to Ukraine by the European Union is at the point of initial price destabilization, which has already forced the National Bank of Ukraine to increase the discount rate from 13 to 13.5%, and this process may be continued (in order to stop this dangerous trend).

Moreover, it is worth noting that the risks of a certain slowdown in the volume of external financial assistance (currently these challenges are minimal, but there is a possibility of their strengthening from the second half of next year) may affect the increased use of internal sources of financing the budget deficit, in particular emission sources, which may intensify inflationary and devaluation processes (the latter will be influenced, in particular, by the increase in the population's purchase of foreign currency).

It is worth noting that the increase in the discount rate of the National Bank of Ukraine directly affects the slowdown in the pace of economic recovery and reduces the impact of credit leverage on the economy.

So, in the baseline scenario, we can predict:

• maintaining the growth rate of gross domestic product at 3–4%;
• inflation in the range of 8–10%;
• devaluation of the hryvnia no deeper than the inflation rate, i.e. an exchange rate corridor of 42–47 UAH/USD;
• reduction of unemployment to 11–13%.

However, in the case of escalation models (intensification of the dynamics of the war and/or the shock of a reduction in external support), the situation may significantly worsen:

• reduction of economic growth rates to 0–2% (there are also options for a drop in gross domestic product);
• inflation in the range of 10–15%;
• devaluation of the hryvnia beyond the horizon of “50”;
• increase in unemployment to 20%.

The beginning of the return of the population from abroad should not be expected either in the first scenario or in the second. However, it is worth noting that within the first scenario, the number of refugees abroad could increase by another 300–500 thousand, and within the second scenario, by 500 thousand to 1 million.

So, like the prospects of war, the economic context of our existence is also in a state of uncertainty.

Uncertainty and ambiguity are the keywords of 2025.