Even though the West has agreed on security guarantees for Ukraine, a ceasefire with Russia is still a long way off. Ukraine’s economy will remain dependent on financial aid for years to come.
Despite all the Europeans’ efforts to achieve peace, there are no signs from Moscow that it is willing to engage in talks. The Russian aggressor continues to bomb Ukraine with undiminished intensity. For many observers, the economic development of the attacked country is a miracle of resilience.
Despite all the damage and destruction, Ukraine could exceed an important milestone in 2025: an economic output of 200 billion US dollars. This target figure has not yet been achieved due to crises – be it the global financial crisis of 2008, Russian aggression in 2014 or the full-scale invasion of 2022. But even if it looks like a recovery on paper, the Ukrainian economy remains in a fragile state. It cannot afford to make any mistakes, because resilience is not guaranteed in the long term.
In a recent discussion organised by the Centre for Economic Strategy (CES), a Kyiv-based think tank, nine leading macro analysts came together to share their forecasts for the Ukrainian economy in the coming year. The general consensus was that the initial emergency mode is over and Ukraine is now entering a difficult phase. The situation is characterised by sluggish growth and high uncertainty.
While global reporting on Ukraine is dominated by diplomatic negotiations between US President Donald Trump and Russian leader Vladimir Putin, who are looking for ways to force Ukraine to back down, most Ukrainians are now unimpressed by this. There are no objective reasons to believe that Russia is willing to end its aggression. All analysts assume in their baseline scenario that the war will continue until 2026. One of the economists anticipates an alternative scenario that envisages a ceasefire at the beginning of this year.
The most striking feature of the forecasts for 2026 is the enormous uncertainty. The median forecast assumes moderate real output growth of 2.4 per cent in the coming year – only slightly higher than expected for 2025.
However, this variable depends heavily on the assumed developments on the front lines. Dragon Capital, one of Ukraine’s largest financial and investment companies, provides the most sobering figures, illustrating the extent of lost economic growth. In the event of war, they expect growth of one per cent, and if a stable ceasefire is achieved in the first half of 2026, they forecast growth of five per cent. The difference corresponds to the peace dividend.
Russia’s war expenditure is roughly equivalent to Ukraine’s entire GDP. Ukraine cannot counter this on its own. Foreign aid, military ingenuity and strong morale partially compensate for the lack of financial resources. Nevertheless, chronic underfunding is not a suitable strategy for deterring Russia, let alone leading to its defeat.
Ukrainian economists estimate that by 2026, their country will need external financing of around $45 billion and international financial aid of around $39 billion to balance its budget and cover its debt servicing. It should be noted that these figures are largely derived from the government’s budget plan. This plan is based on status quo requirements and expectations regarding future financial support from international partners (currently mainly Europe). However, the actual requirements depend on the strategic objectives of the war. So far, the available resources have not been sufficient to defeat Russia.
According to estimates by the Centre for Economic Strategy, Ukraine’s budget for 2026 will be at least 13 per cent underfunded for war expenditure this year. This will most likely necessitate a revision in the middle of the year and a search for additional resources.
The EU’s commitment to grant Ukraine a loan of €90 billion is a positive sign for macro-financial stability over the next two years, but the lack of consensus on the use of Russian assets has revealed a strategic weakness and a problem of collective action: when individual efforts are costly and the benefits (collective security) are shared, this leads to unequal burden sharing. Ultimately, it is much more costly to wage a defensive war than to simply finance it.
Thanks to the reform of the central bank and a comprehensive restructuring of the banking sector in the ten years prior to Russia’s full-scale invasion, Ukraine was able to cushion the inflation shock and stabilise inflation. An inflation rate of around 9 per cent is expected at the end of 2025. Given the tight monetary policy, private financial analysts expect inflation to fall in 2026 and reach 6.6 per cent by the end of the year. These forecasts are in line with those of the central bank, which expects the inflation target to be met in 2027.
The analyses confirm that Ukraine has mastered the art of tactical economic survival and has managed to stabilise itself. But ‘staying afloat’ is not a strategy for long-term success in Europe. For stable peace, either Ukraine must win or Russia must lose. Achieving both is costly. But a middle ground creates space for autocrats to take more. And the long-term loss of international security costs even more.
Source: Frankfurter Allgemeine Zeitung (FAZ).
