Ukraine’s civilian economy and its air defenses do not operate as separate systems – when air defense fails to protect the skies, the economic damage shows up directly in growth and financing figures, Oleksandra Betliy, an analyst at the Institute of Economic Research, said at an online panel, “Ukraine’s Economy in 2026 and 2027: Forecasts by Independent Economists”.
Financing needs are closely tied to the state of Ukraine’s air defenses, Betliy said, adding that without sufficient air defense, strikes reach further into the economy, losses run higher, and the gap between what the state needs to spend and what current forecasts assume widens accordingly.
Betliy’s warning came as three institutions presented 2026 GDP growth forecasts ranging from 1% to 1.8% at the same panel, with Dragon Capital, the KSE Institute and the National Bank of Ukraine (NBU) all pointing to the same underlying drivers – war-related destruction, the Black Sea ports crisis and a partial offset from localized arms production – while diverging on how far those forces will move the numbers.
Insufficient air defense allows strikes to reach businesses broadly, worsening the GDP outlook and, in turn, raising the risk of the need for additional funding that Ukraine will be forced to request from partners or find inside its own war-drained economy.
Air Defense Shortfalls Feed Directly Into Economic Losses
Betliy drew the same line on Russia blocking the Black Sea corridor and jeopardizing Ukraine’s exports, pointing to an active, ongoing dialogue between business and government over how to support farmers cut off from Black Sea exports. Helping businesses hit by recent and earlier strikes recover and resume operations is likewise necessary for the economy to function, Betliy said, but requires additional spending even as the affected businesses generate no revenue in the meantime, eroding the tax base that funds the war effort in the first place.
Dragon Capital Cuts 2026 Growth Forecast to 1%
Dragon Capital cut its 2026 GDP growth forecast to 1%, down from a previous estimate of 1.5%, Olena Bilan, the company’s head of research and chief economist, said.
The downgrade reflects a bigger-than-expected hit to sectors outside the defense-industrial complex, which is still expected to contribute roughly 1.5 percentage points to GDP this year – more than in 2025 – as a large EU package known as Ukraine Support Loan (USL) channels direct financing into drone production and expands resources available to the sector.
Outside defense, Bilan said, the civilian economy has been suffering since the escalation began around June: household consumption, the main driver of growth in recent years, is showing signs of slowing even as incomes keep rising in nominal and inflation-adjusted terms, squeezed by mounting stress on the population and the destruction of business logistics infrastructure.
The full stoppage of Black Sea ports, assuming partial rerouting of agricultural exports to Danube river ports, will shave 1% to 1.5% off GDP on an annualized basis, Bilan estimated, though the hit to 2026 specifically will be smaller – 0.5% to 0.7% – given how much of the year has already passed.
Bilan cautioned that earlier estimates (putting the damage as high as 6 percentage points) referred to 2022, when the economy was contracting from a much higher base. Even when the ports were operating normally this year, sectors that depend on them – chiefly metals and steel – were already being hurt by other factors, including new EU quotas.
Those quotas, she said, will barely register at the level of the overall economy but will weigh noticeably on the metallurgy sector specifically.
Where Dragon Capital had expected the civilian economy to slow to roughly zero growth earlier this year, it now expects an outright contraction of about 1 percentage point outside the defense-industrial complex.
KSE Institute Sees Inflation Climbing to 11% by Year-End
Ukraine’s price growth will climb to 9%-11% by year-end, Dmytro Krukovets, an expert in macroeconomic analysis at the KSE Institute, said during the event. Meanwhile, the NBU has revised its own forecast up to 10%.
Household inflation expectations, according to Krukovets, have swung between roughly 10% and 13% from month to month over the past half-year, reflecting an environment unsettled by alternating rounds of good and bad news – including this year’s uncertainty over an EU financing package, Hungary blocking the aid to Ukraine, and, more recently, the Odesa ports vessels strikes that caused Black Sea corridor blockade.
Core inflation – inflation figure excluding the volatile prices – is now running ahead of the headline rate, he added. Services prices are rising fastest, and fuel costs are more likely to keep climbing than to ease – a supply-side shock he expects to persist through 2026 and 2027 before demand-side pressures take over closer to 2028-2029.
The KSE Institute forecasts inflation near 11% by the end of this year and around 9% over the following several years.
The NBU’s decision to raise its key policy rate even with headline inflation at a low 7% and on a clear disinflationary path was itself a signal, Krukovets said – a proactive move meant to anchor expectations he expects to come under further strain as Odesa-related data feeds through in the coming months.
On the exchange rate, Krukovets pointed to a structural trade imbalance – exports now running at less than half the level of imports – that has driven a steady, creeping depreciation of the hryvnia through the first half of 2026 and will deepen further as Odesa’s closure curbs exports.
Households surveyed a month ago expected the rate a year from now to be near 47 to the dollar, up sharply from the current 44; the KSE Institute forecasts depreciation to 46.3 by year-end, with risk skewed toward a weaker outcome.
Still, Krukovets said the NBU’s capacity to intervene and head off panic buying of foreign currency remains high, since reserves are set to hit a record by year-end on the back of substantial external assistance – a dynamic he expects to sustain gradual depreciation toward 47-48 to the dollar through 2026 and 2027.
NBU Raises 2026 Growth Forecast to 1.8% on Arms Localization
Volodymyr Lepushynskyi, deputy governor of the NBU, said the wide spread among analysts’ growth forecasts for this year and next largely reflects differing assumptions about how the war develops, though the estimates converge when averaged.
The NBU’s own revision rests on two offsetting factors.
First, the war-related destruction, which subtracts an estimated 0.9 percentage points and would have pulled the central bank’s April forecast of 1.3% growth down to 0.4% on its own.
Second, for the first time, is large-scale localization of weapons production – for which Ukraine has the capacity – adding an estimated 1.4 percentage points.
Net of both, the NBU has raised its 2026 growth forecast to 1.8%, though Lepushynskyi cautioned that the number carries unusually wide uncertainty given how many variables are still in motion.
He also flagged stronger underlying inflationary pressure. While headline inflation eased over the summer, preliminary July data already point to a reversal. There is a risk inflation gets stuck above the NBU’s 5% target for an extended period, a risk visible in core inflation trends.
Some of that pressure is coming from higher costs on the supply side, Lepushynskyi said, but demand is also a factor, with signs of overheating in the labor market. The state spending from foreign aid will be redirected to arms production and cause secondary effects, as wages paid in that sector flow into spending on goods and services further down the chain.
Localized weapons production also cuts both ways for the currency: it raises import needs, since arms manufacturing carries a high import content, but much of the associated funding arrives as grants that improve the current account, with some proceeds staying in reserves rather than being spent on imports.
The NBU has raised its year-end reserves forecast to nearly $70 billion, Lepushynskyi said, and while the structural rise in currency demand tied to arms localization means the central bank will likely need to intervene heavily in the market. However, it is no problem for the central bank given the reserve buffer available, he added.
On rates, the head of the NBU’s monetary policy team said the central bank had briefly seen room to expect improved oil-price assumptions a few weeks ago, but attacks in the Middle East resumed and oil prices started climbing again, creating the uncertainty.
That, he said, requires the NBU to keep hryvnia savings attractive and act preemptively rather than reactively. He added that even with reserves forecast at record levels, the buffer is needed to offset an eventual shift toward looser rate policy once conditions allow.
Among the risks he flagged: the pace of international financing, the unpredictable trajectory of the war, the risk of further destruction, and the possibility of additional budget needs.
He also pointed to a potential source of disinflation – lower domestic grain prices feeding through to cheaper processed food – but warned that this cuts against medium-term growth, since it weakens farmers’ finances and their ability to fund the next sowing season.