The Ukrainian economy has faced a new crisis amidst a full-scale war: production is falling, whilst consumer prices continue to rise. According to the National Bank of Ukraine’s updated forecast, real GDP may fall by 0.4 per cent in 2026, whilst inflation is set to reach 12.5 per cent by the end of the year. This combination of indicators points to stagflation. The main reasons for the deterioration in the situation are Russian attacks on the energy sector, industry and logistics, as well as restrictions on maritime exports. However, experts cite the demographic crisis as a long-term threat: due to migration and a shrinking working-age population, Ukraine will find it more difficult to restore production even after the active phase of the war has ended.
- The NBU forecasts that Ukraine’s GDP will fall by 0.4 per cent in 2026.
- Inflation could reach 12.5 per cent by the end of the year.
- The KSE Institute forecasts a 0.6 per cent contraction in GDP in 2027, whilst the NBU expects modest growth.
- It is estimated that the budget could face a shortfall of over $32 billion in 2027, whilst defence requirements remain partially unfunded.
- The demographic crisis threatens to slow down post-war economic recovery.
Why has Ukraine’s economy started to contract?
In October National Bank has sharply revised down its macroeconomic forecast. Whereas the regulator had previously expected GDP growth of 1.8 per cent in 2026, it now forecasts a contraction of 0.4 per cent.
The inflation forecast has also been revised upwards — from 10 per cent to 12.5 per cent. According to the NBU’s estimates, the intensification of Russian attacks and the blockade of ports have reduced the economy’s potential output in 2026 by 1.9 percentage points and added approximately 0.7 percentage points to inflation.
The most affected are metallurgical plants, the extractive industries and sectors dependent on maritime exports. The destruction of production facilities, transport and warehousing infrastructure is reducing output and increasing business costs.
Economists refer to this situation as stagflation — a state in which economic activity weakens or contracts, whilst prices continue to rise rapidly. The National Bank acknowledges the presence of its formal characteristics, but emphasises that the current crisis is caused primarily by the destruction wrought by the war, rather than by a normal economic cycle.
What are the forecasts for 2027?
The NBU expects the economy to gradually return to growth of 0.4 per cent, whilst inflation is set to slow to 7.3 per cent. This scenario assumes an improvement in logistics from mid-2027, the restoration of damaged infrastructure and the continuation of international support.
At the same time, the KSE Institute forecasts a 0.6 per cent contraction in GDP in 2027. Its analysts expect the Russian attacks to continue to have a negative impact, alongside a deterioration in export conditions and a weakening of consumer demand.
The KSE also warns that the recovery of industry may be delayed due to extensive damage to production facilities.
The budget may require tens of billions of dollars
An economic slowdown has a direct impact on public finances. Businesses are producing less, revenues are falling and, consequently, tax revenues are declining.
According to the chair of the Verkhovna Rada’s Budget Committee Roksolana Pidlasa, in January–October 2026, tax revenues to the budget fell short of the target by 73.7 billion hryvnias.
According to *Ekonomichna Pravda*, preliminary government estimates suggest that the budget could face a shortfall of over 32 billion dollars in 2027. Separately, the Defence Forces« unfunded requirements are estimated at approximately $45 billion. These are financial requirements, not expenditure that has already been incurred.
At the same time, in its October study, the KSE Institute estimated the total budget funding shortfall for 2026–2029 at $99.5 billion, taking into account the support already pledged. This estimate is based on the assumption that the full-scale war will end in the second half of 2027. If hostilities continue for longer, financial requirements may increase.
The demographic crisis could become the main obstacle to recovery
Even after end of war Ukraine risks facing a shortage of the workers needed to rebuild its industry, construction sector and infrastructure.
According to estimates by the KSE Institute, at the start of 2026, around 29.4 million people were living in the government-controlled territory of Ukraine. A further 6.5 million Ukrainians were living abroad, excluding Russia and Belarus.
The situation is exacerbated by natural population decline. According to figures cited by «Ekonomichna Pravda», since the start of the full-scale war, the number of deaths has exceeded the number of births by approximately 1.2 million people.
Researchers at the KSE Institute predict that the size of the civilian workforce could fall from 12.9 million people at the start of 2026 to 11.9 million by the end of 2030. Even if some refugees return, the labour shortage will remain a serious problem.
To ensure the projected rate of recovery, labour productivity per worker must grow by an average of 5.1 per cent annually between 2027 and 2029. This is more than double the average pre-war rate.
As at 11 November 2026, the year-on-year decline in GDP remains a forecast rather than a final figure. The future situation will depend on the intensity of Russian attacks, the resumption of exports, international financial support and Ukraine’s ability to attract investment. Even if the economy stabilises, demographic losses may hamper its recovery over the coming decades.
