KSE Institute has released the February 2026 edition of the Ukraine Monthly Economic Update, outlining recent macroeconomic trends at the start of the year amid the full-scale war. International reserves reached a new historical high, while inflation continued to decelerate. At the same time, the economy faces widening external imbalances, depreciation pressures, and the ongoing impact of Russian strikes on energy infrastructure.

External imbalances widened markedly. The merchandise trade deficit reached $51.0 billion over the year, increasing by $18.0 billion compared with the previous year. This was driven by lower exports of food and mineral products alongside a sharp increase in imports of machinery and equipment, particularly for defense, reconstruction, and investment needs. At the same time, strong external inflows helped lift international reserves to a record-high $57.7 billion in January.

Despite this, depreciation pressures intensified. The hryvnia weakened to new historical lows, reaching UAH 42.9 per USD and UAH 50.3 per EUR. Demand for foreign currency remained elevated, with net FX purchases by households rising to $821 million — the highest level since March 2025 — while devaluation expectations continued to increase.

Inflation, meanwhile, continued to decelerate, falling to 7.4% year-on-year in January. This was supported by declining food prices following a strong harvest and falling prices for non-food goods. Against this backdrop, the National Bank of Ukraine started an easing cycle, lowering its key policy rate to 15%, creating conditions to support lending and economic activity.

Fiscal developments remained broadly stable at the beginning of the year. General fund revenues exceeded the plan by 57.7% in January, supported by a World Bank grant, while tax revenues, particularly VAT, fell short of expectations, potentially reflecting weaker consumption dynamics. At the same time, expenditure execution remained slower due to procedural factors typical for the start of the year, and the general fund deficit remained minimal.

Economic activity shows mixed signals. Real GDP grew by 3% year-on-year in the fourth quarter of 2025, but monthly indicators point to renewed weakening toward year-end. Industrial output declined by 3.5% in December, driven primarily by losses in mining and energy, as electricity and gas production dropped sharply following Russian attacks and capacity shortages. Construction activity, however, remained relatively resilient and continued to expand.

Key risks include the impact of Russian strikes on energy infrastructure, persistent trade imbalances, and continued depreciation pressures. The loss of generation capacity and electricity shortages are increasing business costs, weakening competitiveness, and constraining economic recovery. At the same time, Ukraine’s macroeconomic stability remains highly dependent on timely and predictable external financing, which continues to play a critical stabilizing role.