Ukraine’s real GDP grew by 0.5% in the first quarter of 2025 compared to the same period the previous year, the National bank of Ukraine (NBU) – Ukraine’s central bank – reported.
The figure is lower than alternative estimates of real GDP growth of 1.1% in the first quarter, published by the Institute for Economic Research and Policy Consulting (IER).
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Previously, the NBU decreased its GDP forecast for 2025 to 3.1%.
The heightened pessimism is caused in part by the on-going destruction of gas infrastructure from Russia’s strikes at the beginning of 2025, leading to Ukraine’s increased reliance on imported gas for the next heating season.
A workforce deficit, caused by internal migration and relocation of five million Ukrainian refugees abroad, has also constrained growth.
“Despite some recovery in the labor market, a significant constraining factor, according to business surveys, is the war-induced shortage of qualified workers,” the NBU wrote in its April 2025 Inflation Report.
Trade wars and tariffs haven’t affected Ukraine’s economy for now, but they might weaken demand for Ukraine’s exports. However, “agricultural products will remain in demand even amid a global economic slowdown,” the NBU wrote.
Inflation should return to one-digit in 2025
During the first quarter of 2025, inflation continued to accelerate, reaching 14.6% year-over-year in March. This growth was driven by the residual effects of last year’s poor harvests, continued increases in prices of excisable goods, rising business costs for energy and labor, along with sustained consumer demand.
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Prices for services also keep growing, the NBU wrote. Its core lies in wage growth, triggered by the labor deficit.
But Ukraine’s central bank has seen the first signals that inflation is slowing down.
“The month-on-month seasonally adjusted inflation dynamics suggest signs of easing price pressure. This was supported in part by the NBU’s measures to maintain the resilience of the foreign exchange market and keep inflation expectations in check,” the NBU wrote.
The central bank stated that average inflation is forecast to reach 12.7% average in 2025, while end-of-the-year inflation will decelerate from 14.6% in the first quarter to 8.7% by the end of 2025. Inflation will return to a downward trend in the summer, according to Ukraine’s central bank.
But the key rate in Ukraine will remain high – 15.5% – as inflation decelerates slowly.
“The NBU plans to return to cutting rates once the peak of inflation has passed and the risk of prices staying high for too long goes down. If that risk grows, the NBU says it will keep the rate at the current level for longer than expected and is ready to take extra steps if needed,” the Inflation Report says.
Ukraine’s economy regains footing after Russia’s invasion
The Inflation Report forecasts unemployment at 10.9% in 2025. Despite the prolonged workforce deficit, this is a severe reduction from around 20% in 2022, and 13% in 2024, according to figures voiced by NBU Deputy Governor Sergiy Nikolaychuk in an interview for Kyiv Post.
In 2025, Ukraine will receive tranches under the G7 Extraordinary Revenue Acceleration for Ukraine (ERA) initiative – wherein Russia is made to pay for its invasion of Ukraine. This will boost Ukraine’s international reserves to a record $58 billion, compared to $42 million in April 2025.
This year, Ukraine is set to receive more international financial aid than expected, thanks to quicker payments under the ERA Loans program.
These funds will not only help cover the 2025 budget deficit but also create a financial cushion for next year, when foreign support may start to shrink.
Financing for 2026 is a key issue for discussions with international partners.
Russia’s war against Ukraine is the biggest threat to the economy
Russia’s full-scale invasion continues to threaten Ukraine’s long-term economic potential by causing the loss of people, territory, and industry.
“How fast the economy returns to normal will depend heavily on how long the fighting lasts and how it evolves,” the NBU wrote.
Tariffs, trade wars and global uncertainty pose additional risks – Ukraine may face a tougher external environment, according to the Inflation Report. This will also constrain internal growth and investments in recovery.
Kyiv Post previously wrote about another reason for lower growth within Ukraine’s economy – that it has reached its peak potential and cannot physically produce more.
Previously, Chief Executive of IER Oksana Kuziakiv told Kyiv Post in an interview that she does not believe in miracles for Ukraine’s economy in 2025.
She and her colleagues at the IER observed that Ukraine’s economy is now working at its maximum capacity and cannot physically deliver a higher real GDP increase.
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