Dollar exchange rate, prices, and salaries: what to expect for Ukraine's economy in 2025 and the impact of the ongoing war.

What will be the key parameters of the Ukrainian economy in 2025 – GDP, inflation, exchange rate of the hryvnia, budget deficit and national debt, NBU reserves, and current account. More details in the overview by RBC-Ukraine financial editor Ruslan Kislyak.

The RBC-Ukraine editorial team reached out to several investment firms, banks, and well-known investment bankers and analysts to forecast the main macroeconomic indicators for Ukraine in 2025.

The forecast includes the following indicators: real GDP, nominal GDP, consumer inflation (average for the year and at the end of the year), exchange rate of the hryvnia to the US dollar (average for the year and at the end of the year), state budget deficit, national debt, current account balance, NBU discount rate, and NBU gold and foreign exchange reserves.

Risks that remain with us

The main risk that will persist in the coming year and affect all areas of life will be the war. Due to the war, there are ongoing risks of loss of people, territories, production facilities, and the resulting decrease in economic potential. The speed of the economy's return to normal conditions will depend on the nature and duration of the conflict.

Among other risks associated with the war, are the emergence of additional budgetary needs, potential tax increases, further damage to infrastructure, primarily energy and port facilities, deepening migration, and an increase in labor market shortages. This forecast was voiced at the end of last year by the head of the National Bank Andriy Pyshny.

At the same time, in his opinion, positive scenarios are also possible, particularly related to the acceleration of Eurointegration processes.

Although significant uncertainty remains in many areas of life, it has noticeably decreased compared to the onset of the large-scale war. As noted by the head of the NBU, banks and payments are operating smoothly, energy workers once again demonstrate their ability to perform miracles in restoring the energy system, and businesses and the population exhibit exceptional adaptability.

Against this backdrop, the hryvnia continues to function as a full-fledged currency, remaining a measure of value, means of payment, and savings. The risks of international financing have significantly decreased. The central bank has shifted to flexible inflation targeting.

Nevertheless, the former head of the NBU Council, Head of the Department at the Hetman B. Danilishin Institute of Economics, publicly warns that a decrease in volumes and disruption of the rhythm of international support for Ukraine due to political processes in partner countries could cause significant harm to financial stability and Ukraine's defense capabilities. Additionally, a potentially renewed blockade of cargo transport on the western border and restrictions on maritime transport routes could negatively impact the external trade balance, generating risks for currency stability.

Possible risks for Ukraine in 2025 are also mentioned in the December Memorandum on economic and financial policy within the Extended Fund Facility (EFF) of the International Monetary Fund. In particular, security risks may persist longer than expected, which will exert pressure on the state budget and lead to additional financing needs. A prolonged or intense war will negatively affect the sentiments of companies and households, as well as exchange rate and inflation expectations, hinder the return of migrants, exacerbate labor market disparities, and delay private investments. All of this will adversely affect economic growth.

Export transit routes may be significantly disrupted, further large-scale damage may be inflicted on energy infrastructure, or supply chain disruptions may reoccur, affecting production costs and profitability of enterprises.

"Although short-term risks regarding external financing have decreased after recent payments and signing the ERA financing agreement (grants for Ukraine totaling $50 billion from future revenues of arrested Russian central bank assets – ed.), deficits or delays in financing may recur, intensifying financial constraints and requiring difficult compromises in policy. Moreover, in the event of such risks materializing, it may be challenging to mobilize the necessary additional volumes of domestic financing," states the Memorandum of Cooperation with the IMF.

Analysts from the investment company Dragon Capital also warn about potential risks for the Ukrainian economy. Key risks are particularly associated with more significant damage to critical infrastructure: generating and distribution energy capacities, gas assets, and Black Sea ports.

"Additionally, the advance of the Russian army in the Donetsk region threatens the operation of a key asset for coking coal extraction. However, we assess that the potential loss of these production capacities will have a limited negative impact on the economy," assure Dragon Capital.

Other, less significant risks are associated with weather conditions, which will affect electricity shortages and agricultural yields; fluctuations in the dollar/euro exchange rate, as the Ukrainian economy gradually shifts towards the euro; and price dynamics in major commodity markets of the EU and the world (grains, ores, metals, oil, gas, and electricity).

However, not everything is as bleak as it may seem. Despite such warnings, experts surveyed by RBC-Ukraine are cautiously optimistic about Ukraine's economic prospects for the coming year.

According to analysts at the investment company ICU, for most of 2025, the Ukrainian economy will operate under the safety conditions that exist today.

"Fortunately, the financial assistance pledged by our partners in 2025 will be fully sufficient to guarantee macroeconomic stability and to ensure that businesses and the population do not face significant economic challenges," says Vitaliy Vavryshchuk, head of the macroeconomic research department at ICU, in a comment for RBC-Ukraine.

Dragon Capital analysts note that because the results of the presidential elections in the USA can significantly affect the geopolitical landscape, the likelihood of a scenario in which the intensity of hostilities in Ukraine significantly decreases or ceases, at least temporarily, is increasing.

"To model economic development under such a scenario, we assume that hostilities will pause at the beginning of 2025. However, without a formal peace agreement, the risk of re-escalation will remain high," states the company's forecast.

In such a scenario, Ukraine will be able to reduce the size of its defense forces and military spending; however, there will be no return to pre-war indicators, as the country will need to maintain high combat readiness and accumulate weapons in case of renewed escalation.

"Based on the experience of other countries that function under the threat of military invasion, such as Israel and Taiwan, we estimate that the number of defense forces may decrease to approximately 700,000 people, or 2.2% of the existing population. Defense spending – may decrease by almost half compared to the baseline scenario," predict Dragon Capital. At the same time, thanks to the ERA package, the government will not face significant financial constraints and will be able to increase non-military spending, particularly social and capital expenditures.

What the Ukrainian economy will look like

What the main parameters of the Ukrainian economy may look like in 2025 – real and nominal GDP, exchange rate of the hryvnia, and consumer inflation – can be seen in the infographic below.

The Ministry of Finance of Ukraine expects that in 2025 the country's economy will continue to recover, despite the fact that the war with Russia is lasting longer than many had predicted. However, economic growth will be accompanied by relatively significant inflation. This will occur, in particular, due to rising business costs for labor and increased energy resource prices, as well as the devaluation of the hryvnia.

The further stabilization of the situation in the energy sector, large harvests, and the stimulating tax policy of the state will support growth in 2025, which is expected to be at the level of 2.5-3.5%. Inflation is expected to slow down to 7.5% by the end of 2025 after accelerating in the first half of the year, primarily due to the base effect.

In 2025, the current account deficit is projected to increase to $29.3 billion due to further reductions in grant financing, high import needs, and low grain harvests in 2024. It is forecasted that thanks to significant financing from international partners, NBU reserves will reach $43.3 billion by the end of 2025. The corresponding forecasts were outlined by the government in the Memorandum with the IMF.

The National Bank of Ukraine notes in its December Financial Stability Report</