GDP growth due to war prolongation to slow down to 2.4% in 2026, defense to require another UAH 775 bln – Budget Declaration
Longer periods of military operations will lead to a slowdown in the growth of Ukraine's gross domestic product (GDP) from 2.7% this year to 2.4% next year, such an alternative scenario of the Ministry of Economy is contained along with the baseline scenario of accelerating growth to 4.5% in the 2026-2028 Budget Declaration.
This scenario assumes a further more subdued economic recovery in 2027 and 2028, averaging 4.6% annually instead of 5% and 5.7%, respectively, in the baseline scenario, according to the declaration, which was approved by Cabinet Resolution No. 774 of June 27 and published on the government portal.
In addition, the alternative scenario will be accompanied by higher inflationary pressure in the economy: consumer price growth will be 9.9% in 2026, 9.4% in 2027, and 7.5% in 2028, compared to 8.6%, 5.9%, and 5.3%, as well as a slower recovery in exports of goods and services.
"The duration of hostilities, the intensity of attacks on energy and other critical infrastructure, the instability of the situation at the front and the unpredictability of the aggressor's further actions remain key factors of uncertainty that directly affect the socio-economic situation in the country," the government said in the declaration.
It adds that if the high intensity of hostilities persists in the medium term, the national economy may face a further weakening of production activity, another disruption of internal value-added chains, limited access to certain resources, as well as an increase in logistics and security costs for businesses.
Such conditions will restrain domestic demand, reduce investment activity, and undermine external stability. Gross domestic product will grow at a slower pace, with the risk of uneven recovery across sectors and regions. Risks remain for exports, especially in terms of the supply of metallurgical products, agricultural goods and other items with a traditionally high share in foreign markets. At the same time, imports of critical goods, in particular, energy and component parts, will remain at an increased level, which will put pressure on the trade balance and the foreign exchange market.
In addition, the continuation of Russia's armed aggression against Ukraine, its intensification, respectively, will require an increase in spending on the security and defense sector to the level of 2025, or by UAH 750-800 billion against the baseline scenario, which in total will amount to UAH 2.6 trillion, or more than 25% of GDP.
"Ukraine will need to maintain external financial support at a level not lower than this year to finance social programs and support the population," the alternative scenario is outlined in the Budget Declaration.
According to it, in this case, the fiscal space will be used for defense purposes, which is expected to amount to UAH 153.1 billion for 2026, and revenue receipts to the state budget may also be increased within the framework of the implementation of the provisions of the National Revenue Strategy and by reviewing the current tax benefits and the current proportions of the distribution of certain state taxes between the state and local budgets.
Another source is an increase in the deficit due to both external and internal financing, the possibilities of which will be determined together with the National Bank.