E-mail : inquiry@ronsteel.comPhone : +8615308477503
We are committed to providing one-stop service for steel pipe products to customers around the world.
Key Risks: Intensified Warfare and Energy Infrastructure Damage
The National Bank of Ukraine (NBU) forecasts that the Ukrainian economy will grow by 4.3% in 2025, up from 4% projected for 2024. Inflation is expected to decline to 7% in 2025 from over 10% this year. However, the NBU's primary focus remains achieving its inflation targets rather than other macroeconomic indicators. Deputy Governor Sergiy Nikolaychuk outlined these projections during a recent discussion hosted by the Center for Economic Strategy. Below are the main points of his address.
In October, the NBU revised its GDP growth forecast for 2025, increasing it from 4.1% to 4.3%. This projection holds steady despite uncertainties stemming from global events such as the U.S. elections. For 2026, the NBU anticipates GDP growth of 4.6%.
Economic recovery is likely to face challenges, including labor shortages, security concerns, ongoing migration, and a slow return to pre-war economic conditions. The NBU has identified three primary risks to its 2025 forecast:
1. Prolonged or intensified warfare.
2. Greater budgetary demands.
3. Increased damage to energy infrastructure, exacerbating electricity shortages.
Inflation control is the NBU’s central objective. While inflation at the end of 2024 is projected to exceed 10% (already at 9.7% year-on-year in October 2024), the NBU expects it to fall to 7% in 2025 and reach the target rate of 5% by 2026.
Inflation trends depend on several factors:
· External pressures: This year’s inflation surge was driven by a smaller harvest, rising food prices, energy disruptions, and wage increases. However, many of these factors are temporary.
· Government spending: Programs like the Winter E-Pidtrymka initiative (providing UAH 1,000 for certain expenses) have had limited impact on overall demand.
In the medium term, the NBU aims to create monetary conditions conducive to meeting inflation targets. Adjustments to interest rates and other monetary tools will be made as needed to ensure these goals are met.
The NBU has made it clear that it will not use the exchange rate specified in the state budget (projected to rise from UAH 40.8 to UAH 45 per USD) as a benchmark for policy decisions. This exchange rate figure is a technical indicator for budgetary calculations rather than an operational target.
The NBU’s foreign exchange strategy focuses on stabilizing the currency market and ensuring exchange rate fluctuations do not hinder monetary objectives. Strengthening the exchange rate’s role as a shock absorber is seen as critical for enhancing the economy’s resilience.
Contrary to some opinions, the NBU opposes deliberate hryvnia devaluation to address external imbalances. While Ukraine has a significant current account deficit due to war-related challenges, international financial aid is gradually closing this gap. The NBU expects foreign reserves to exceed $43 billion by the end of 2024, further reducing the need for devaluation.
The NBU is already analyzing scenarios for Ukraine’s post-war recovery. Historically, many war-affected nations have faced prolonged recessions due to fiscal consolidation measures aimed at reducing debt levels. However, the NBU anticipates a more optimistic outcome for Ukraine, driven by:
1. Integration into the European economy: Deepening ties with Europe is expected to boost Ukraine’s economic recovery.
2. Ongoing international support: This includes leveraging frozen Russian assets and other financial assistance.
These factors are likely to distinguish Ukraine’s recovery from the negative examples of other war-affected countries, supporting a more robust and sustained economic rebound.
While the NBU forecasts a modest 4.3% economic growth for 2025, significant risks remain, including the potential for increased warfare and infrastructure damage. Inflation is expected to decline steadily, and foreign reserves remain strong, providing a foundation for stability. Looking ahead, Ukraine’s integration with Europe and continued international support are seen as pivotal to its long-term economic recovery and resilience.
