Ukraine’s economic growth will slow down to 2%: OECD updates forecast

The Organization for Economic Co-operation and Development forecasts a slowdown in Ukraine’s economic growth to 2% in 2025 and a continuation of growth at 2% in 2026, unless security is restored, according to the OECD’s June review, writes UNN.

Details”Activity continues to recover, but more slowly. Growth is projected to slow to 2% in 2025 and remain at 2% in 2026 unless security is restored,” the report said.

Ukraine’s economic growth, as noted, will be supported by international aid, defense spending and domestic private demand.

“Labor shortages will continue to constrain growth. Uncertainty remains extremely high. A deterioration in the security situation or less external support creates negative risks for the outlook. Conversely, if security can be restored more quickly, reconstruction and recovery will accelerate. Public spending is an auxiliary activity,” the OECD said.

The National Bank of Ukraine, as the OECD points out, “justly raised the discount rate in response to rising inflation and continues to move towards a fully floating rate.”

Hryvnia exchange rate: The IMF says what it should be23.05.25, 12:53 • 2328 views

“Given the high needs for defense and reconstruction spending, government revenues can be increased by implementing tax administration reforms to better enforce the law, reduce exemptions and narrow the scope of the simplified taxation regime,” the report said.

“A policy to support veterans and migrants to reintegrate into the economy will be central to future economic growth,” the OECD said.

The IMF advises Ukraine to increase VAT and luxury taxes in 202605.05.25, 13:05 • 9305 views

The economy remains stable, but the pace of recovery has slowedThe OECD points out that Ukraine’s GDP grew by 2.9% in 2024. “Growth slowed in the second half of 2024 and early 2025 due to persistent labor shortages and continued Russian attacks on energy infrastructure. Despite this, business sentiment improved sharply between January and March 2025. Strong consumer demand, reflecting rising real wages, increased defense-related production and construction, and a more stable energy supply contributed to improved company expectations in all sectors,” the report said.

For the first time in a year, business positively assesses its prospects in all four sectors – NBU02.06.25, 13:40 • 1964 views

At the same time, the OECD noted, inflationary pressure is high.

“Consumer price inflation reached 15.1% year-on-year to April 2025, reflecting higher domestic food and energy prices, while core inflation was 12.1%,” the report said.

The labor supply, as noted, increased in the first quarter of 2025 as young and older people, as well as women, were drawn into the labor force, but labor shortages continue to be a major obstacle facing business.

“Exports of agricultural and metallurgical products declined in the second half of 2024 and then stabilized in the first months of 2025. Imports increased, increasing the trade deficit,” the report said.

Ukraine’s foreign trade went into negative territory by $11.5 billion: what they traded and with whom09.05.25, 17:48 • 10324 views

“The direct impact of the US 25% duty on steel and aluminum imports and the 10% duty on other goods is limited, but the indirect impact through lower demand in other markets may be more significant,” the OECD said.

US tariff will not have a tangible direct impact on the exchange rate and prices of products in Ukraine – Ministry of Economy03.04.25, 18:03 • 11128 views

Ukraine has reportedly concluded a new agreement with the European Free Trade Association that eliminates or reduces tariffs on a range of goods. External assistance during the first months of 2025 was sufficient to cover funding needs, and the central bank’s foreign reserves increased by more than $4 billion to $46.7 billion at the beginning of May 2025, equivalent to nearly six months of imports.

Interest rates have been raised, while public finances remain stressedThe budget deficit is projected to be around 20% of GDP in 2025. External support, including the ERA mechanism of US$50 billion and the EU Ukraine Facility for Ukraine, is reportedly “covering a significant portion of funding needs throughout 2025”.

“Fiscal policy remains focused on financing military efforts while protecting essential public services,” the report said.

It is noted that in response to rising inflation, the NBU raised the discount rate from 13.0% in December 2024 to 15.5% in March 2025. “The National Bank of Ukraine will need continued vigilance to stabilize inflation and ensure that expectations are maintained,” the OECD said.

Recovery will remain weak until security is restored”In 2025, moderate growth of 2.0% is expected, as defense spending continues to support activity and consumer spending rises, as labor shortages further stimulate wage growth,” the OECD said.

“Somewhat less favorable agricultural conditions in 2024 will negatively affect production and exports in 2025 and contribute to inflation. The suspension of operations at the Pokrovska mine is expected to affect steel production and exports,” the report said.

Growth is projected to remain at 2% in 2026.

“Inflationary pressures are expected to remain high in the near term due to limited supply, as well as the fact that rising labor costs and higher energy prices for producers are passed on to retail prices. Energy and food prices are projected to stabilize in 2026, allowing for some easing of inflation,” the OECD said.

The OECD noted that “uncertainty remains extremely high”.

“Ukraine remains dependent on continued international military and financial support. Reduced international technical assistance could also slow the pace of reforms and improvements in the investment climate, burdening the return of displaced persons. The foundations for recovery lie in macroeconomic stability and improved basic conditions. Conducting restructuring of outstanding external public and government-guaranteed debt and contingent liabilities, as well as a willingness, when conditions allow, to return the budget to a medium-term target of a small deficit, can support the sustainability of public finances. Narrowing the scope of the prospective tax regime, along with reducing the burden of tax compliance, can support revenues and improve the business environment,” the OECD report said.

It is also noted that strengthening public investment management to improve project quality and implementation will contribute to reconstruction in an environment of limited fiscal space.

“Strengthening the labor market, including through access to retraining programs and improved working conditions to help war veterans and displaced persons reintegrate into the workforce, will be central to addressing the demographic challenges exacerbated by Russia’s invasion,” the OECD said.

OECD: Global economy experiencing weakest growth since COVID03.06.25, 12:12 • 732 views