Ukraine’s central bank, the National Bank of Ukraine (NBU), kept the key rate steady at 15.5%, but slashed GDP growth forecast by 1% because of weather, war, and higher defense spending.
The NBU announced the decision at a briefing on Thursday, July 24.
Inflation in Ukraine is decelerating, declining in June by 14.3% year-over-year. But this is still higher than the NBU’s forecast trajectory, leading to the central bank’s decision not to rush and keep the key rate steady.
A more concerning factor is the April frosts, as they delayed the sowing campaign and hampered future harvests, causing the NBU to slash this year’s GDP growth by a whole percent. Another source of tension for the economy is security risks, caused by Russia’s protracted war against Ukraine.
In an updated macroeconomic forecast, the NBU slashed the real GDP growth from 3.1% to 2.1% in 2025, and projected even lower growth for 2026 – from 3.7% to 2.3% – and a decrease from 3.9% to 2.8% in 2027.
“The pace of recovery will depend on the course of the war. The baseline scenario of the NBU’s forecast envisages that the economy will gradually return to normal functioning and the economy will grow by 2%–3% in 2026-2027. At the same time, if conditions normalize quickly, private investment and consumption will increase significantly, offsetting the effects of the rapid fiscal consolidation, while GDP growth might reach 3%-3.5%,” NBU governor Andriy Pyshny said during the briefing.
The NBU increased its foreign aid forecast from $17 billion for 2026 in April’s forecast to $35 billion in July, while forecasting $30 billion in 2027, according to NBU’s press release following the Thursday briefing.
“A third of these funds has already been announced by partners, and talks are underway regarding the rest,” Pyshny said.
The scarcity of foreign aid for 2026 is looming as it’s become clear that Russia is continuing its full-scale invasion into the next year, refusing a ceasefire and escalating massive combined aerial attacks. Economists previously envisaged the end of war in 2026, but that reality has changed, and Ukraine has a funding gap of roughly $17.7 billion in 2026, according to Kyiv School of Economics (KSE) estimates.
Although the situation is difficult, NBU governor Pyshny repeated that the NBU will not print the cash to cover the gap: “The monetary financing of the budget’s deficit is not on the table. This is a last-resort decision,” Pyshny said in response to a Kyiv Post question.
April frosts, alongside the protracted war, became another hurdle for economic growth this year. The delayed sowing campaign led to an inability to refill the depleted harvest gathered last year, slowing down the food processing and transport industries, which were underutilized.
Russia’s war in Ukraine poses the same problems for Ukraine’s economy for the third year in a row: further destruction of production facilities, infrastructure, and housing, and increased wages as businesses hunt for an insufficient workforce with Ukrainians leaving the country to relocate to safer places.
The only condition that will make Ukraine’s economy recover from the snailish
2.1% growth in 2025 and beyond is an improved security situation, National Bank of Ukraine Deputy Governor Sergiy Nikolaychuk said, replying to a Kyiv Post question.
“Positive risks for the outlook include a potential improvement of the safety situation and normalization of the conditions for the economy to function better. In this case, the growth will increase to 3-3.5%. These forecasts are based on private consumption and investment offsetting the negative fiscal impulse as a result of fiscal consolidation from decreased defense spending,” Nikolaychuk said.
The more positive forecasts are based on boosted private consumption and investment and decreased defense spending, he added. Scaling up of recovery projects could also boost Ukraine’s economy.