Fitch slashes Ukraine forecast due to sluggish economy and soaring inflation
Photo: Fitch Ratings expects Ukraine's economy to grow by 2.5% (Getty Images)
International agency Fitch Ratings expects Ukraine's economy to slow in 2025 due to the ongoing war. Price growth is projected to exceed 10%.
Weak economic growth and high inflation
According to the report, Ukraine’s economic recovery has slowed: in 2024, real GDP grew by 2.9%. Fitch revised its 2025 growth forecast downward to 2.5%, compared to 2.9% in the previous review.
"This is due to the challenges of a persistently tight labour market, the damage caused by attacks on gas infrastructure and the war-related closure of the Pokrovsk mine," the publication states.
The National Bank of Ukraine tightened its monetary policy by raising the key interest rate by 250 basis points since December 2024 to 15.5%. This was prompted by a rise in inflation to 15.1% in April, following an average level of 6.5% in 2024.
"Inflationary pressures have been driven by last year's poor harvest, higher electricity tariffs and increased mobile telephony rates. Inflation is forecast to average 12.3% in 2025, before easing to 6.5% in 2026," Fitch Ratings forecasts.
Significant foreign aid expected in 2025
Analysts at the agency believe that Ukraine’s financing needs for this year will be fully covered, with an additional liquidity buffer created for the future.
Net external financing is expected to reach $55 billion, compared to an average of $25 billion per year in 2022–2024. This is attributed to the early use of profits from frozen Russian assets.
The IMF program provides for the buildup of foreign exchange reserves through international aid: $9.1 billion in 2025 and $8.4 billion to cover projected budget deficits in 2026–2027.
According to Fitch, there is high uncertainty around funding beyond 2025, which is why domestic borrowing is expected to increase in 2026.
Budget deficit to remain high
Ukraine’s fiscal deficit narrowed to 17.2% of GDP in 2024 due to strong budget revenues, despite a slowing economy. Fitch projects the deficit will rise to 19.3% of GDP in 2025.
High spending pressures will likely continue even after the war ends, as Ukraine is expected to maintain large armed forces. According to the World Bank, Ukraine will require $524 billion for reconstruction over the next decade — approximately 2.8 times the country's nominal GDP in 2024.
GDP growth forecasts
Since the beginning of 2025, international financial institutions and analytical centers have downgraded their forecasts for Ukraine's economic growth. The European Commission lowered its GDP growth forecast to 2.0% from 2.8%.
In April, the IMF revised its forecast for Ukraine’s 2025 economic growth downward to 2.0% from 2.5%.
Also in April, the National Bank of Ukraine lowered its GDP growth forecast for 2025 to 3.1%.
