Ukraine’s economy grew for the third consecutive year under full-scale invasion in 2025—but at barely half the rate of the year before, the National Bank confirmed on 19 March, citing State Statistics Service data.
The figure matched the bank’s own January forecast exactly—less a sign of optimism vindicated than of how precisely Ukraine’s economists have learned to calculate the ceiling war imposes.
The economy remains more than a fifth smaller than before Russia’s full-scale invasion.
Spending up, output down
Growth in 2025 was driven almost entirely by spending, not by a recovering productive base. Household consumption jumped sharply. Government outlays expanded, supported by a loose fiscal stance and military necessity.
These are gains funded almost entirely by Western aid.
Investment surged—but into defense projects and agricultural processing, not broad economic recovery. Construction boomed as Ukraine patched housing and energy infrastructure as fast as Russian strikes could damage it. Teacher pay rises boosted education output; healthcare spending grew too.
These are real gains. They are also gains funded almost entirely by a state budget running a deficit of roughly a fifth of GDP, covered by Western aid.
Industry shrank
Agriculture shrank—poor weather dragged the harvest well below the previous year, and livestock production kept falling as war conditions wore down the sector.
Mining collapsed, driven primarily by the loss of Ukraine’s last operational coking coal mine near Pokrovsk, Donetsk Oblast, which workers destroyed in December 2024 as Russian forces closed in.
Manufacturing barely grew—squeezed between a power system still running below capacity and a workforce that keeps getting smaller.
Every plant running at reduced hours reflects both constraints at once: not enough power, not enough people.
Ukraine’s working-age population has contracted by more than a quarter since 2021, as mobilization and emigration drain the labor pool.
As of January 2026, 5.6 million Ukrainians remain abroad, the Centre for Economic Strategy found, and young people under 35, the age group most likely to fill factory floors, account for more than half of them. Every plant running at reduced hours reflects both constraints at once: not enough power, not enough people.
Ukraine carried out emergency repairs over the summer, partially restoring a grid that Russian strikes had been damaging for months. By December, the buffer was gone.
The trade trap
The trade picture explains most of the underlying strain. Exports fell sharply—depleted agricultural stocks, a slow harvest, weak global metals demand, and rolling energy shortages all limited what Ukraine could actually ship.
Meanwhile, imports surged, as the country purchased defense equipment, energy hardware, and fuel to sustain the war effort and keep the grid from collapsing entirely.
The result: the gap between what Ukraine earns from the world and what it spends on it nearly doubled compared to 2024. Without the domestic spending surge, the headline growth figure would have been sharply negative.
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Risks ahead
The NBU’s January Inflation Report projected the same modest growth rate for 2026, expecting a better harvest and continued defense investment to hold the pace. At that point, the IMF forecast Russia would grow at barely a quarter of Ukraine’s rate—the country financing the war set to grow slower than the country absorbing its missiles.
Then the Iran war changed the math. Russia’s Urals crude tripled in two weeks, delivering a windfall of up to $150 million a day in additional budget revenue—partially reversing months of sanctions pressure.
Whether Ukraine still outgrows Russia in 2026 now depends on how long the Strait of Hormuz stays effectively closed—and whether Washington reinstates the sanctions it waived on 12 March.
On the same day the GDP data was confirmed, the NBU held its key interest rate at 15%—pausing a cutting cycle it had expected to continue. The reason was the war in the Middle East.
If the pressures intensify rather than ease, the NBU has signaled it is prepared to raise rates rather than cut them.
Andriy Pyshnyy, the NBU governor, told reporters that “the January forecast, based on which we had planned to ease monetary policy, is not materializing at this time”—because surging oil and gas prices are now pushing Ukrainian inflation higher than the bank had anticipated.
If those pressures intensify rather than ease, the NBU has signaled it is prepared to raise rates rather than cut them.
The risks to 2026 growth are the same ones—the course of the war, the pace of Western financing—but a second conflict has now added energy costs that Ukrainian industry can least afford.
