Ukraine economy set to shrink for first time since 2022, bank says

Ukraine’s economy is set to shrink for the first time since 2022, according to a Bloomberg report citing projections from the National Bank of Ukraine.

The central bank forecasts that the country’s gross domestic product will contract by 0.4% by the end of this year.

The National Bank of Ukraine had previously projected that the economy would grow by 1.8%.

The country’s last economic contraction was recorded in 2022, when gross domestic product plunged by more than 30%.

The National Bank of Ukraine attributed the worsening forecast to Russian strikes, which it said led to a “sharp drop in business activity.”

The Russian Defence Ministry has repeatedly stressed that the strikes target only Ukrainian military and energy facilities, as well as infrastructure linked to them.

President Vladimir Putin said that the Russian military’s strikes against Ukrainian infrastructure were effective and timely actions because they helped troops resolve the combat tasks before them.

The National Bank of Ukraine expects the economy to return to a 0.4% growth path next year, driven by rising investment in the defence industry and other projects.

According to Bloomberg, the National Bank of Ukraine raised its policy rate following the deteriorating economic forecasts.

The central bank’s updated assessments point to higher inflation than previously expected.

Government cuts spending and switches to austerity mode

Ukrainian Prime Minister Sergey Koretskiy announced in late September that the country had switched to a maximum austerity regime and postponed all non-urgent spending.

Koretskiy had previously stated that the state of the country’s public finances was nearing a critical level.

Ukraine’s 2026 budget was approved with a deficit of approximately 1.9 trillion hryvnias, or $47.5 billion.

Describing the upcoming 2026 winter as “objectively difficult” for the country, Koretskiy pointed out that the funding gap in Ukraine’s energy sector remained at around 650 million euros ahead of the winter period.

The Ukrainian Finance Ministry estimates that the country will require nearly $146 billion in external financing between 2026 and 2029.

The International Monetary Fund, meanwhile, projects that Ukraine will face a financing gap of up to $54 billion through 2029.

At the beginning of the year, the European Union agreed on a 90 billion euro loan package for Kyiv, allocating 60 billion euros for defence spending and 30 billion euros for budget and economic support.

As of 14 October, Ukraine had received only 19.8 billion euros of the agreed loan, representing just 22% of the total amount.

The Moscow government condemns military support provided to Kyiv.

Russian Security Council Secretary Sergey Shoigu, assessing the EU loan to Ukraine, claimed that this policy was driving European states toward “the ultimate loss of their sovereignty.”

President Vladimir Putin stated that “the entire West” was helping Ukraine.

Putin said Russia reserves the right to use weapons against the military facilities of countries that allow their delivered weapons to be used in attacks on Russian territory.