KSE Institute has published the March 2026 Ukraine Monthly Economic Update, which reflects key macroeconomic trends at the beginning of 2026 amid the ongoing war and new external shocks. The economy is entering 2026 in a fragile state: escalation in the Middle East and continued attacks on energy infrastructure are increasing pressure on prices, the exchange rate, and external imbalances, while early data point to a deterioration in the near-term outlook.

External imbalances continue to widen. The trade deficit in goods stood at USD 3.9 billion in January, up 31% compared to the previous year. Imports expanded across all major categories, most notably in machinery and equipment for defense needs and reconstruction. With global oil prices rising, the deficit is likely to deteriorate further in the coming months.

Pressure on the foreign exchange market persists. The hryvnia depreciated to 43.1 UAH/USD and 51.0 UAH/EUR, driven by strong demand for foreign currency, elevated energy imports, and weaker export inflows. The NBU conducted interventions of around USD 3.0 billion, while international reserves declined by 5% to USD 54.8 billion. Exchange rate expectations continue to drift upward.

Inflation increased to 7.6% year-on-year in February, slightly exceeding the NBU’s projected trajectory. Fuel prices rose by 8%, reflecting higher energy costs and the depreciation of the hryvnia. Prices for vegetables, fruits, and imported goods also increased. At the same time, core inflation remained stable, while non-food prices declined and partially offset overall price pressures.

Monetary policy remains cautious. The policy rate stands at 15%, with limited room for further easing given ongoing inflationary pressures. At the same time, lending continues to expand, with total loan volumes increasing by 10% year-on-year.

Fiscal performance in February deviated materially from plan. General fund revenues reached 73.9% of the planned level due to lower-than-expected grant receipts. The deficit amounted to UAH 77.9 billion, twice the target. For the second consecutive month, no external financing was received, and the government covered financing needs through domestic borrowing.

Economic activity shows signs of slowing. Real GDP growth in Q4 2025 held at 2.8%, supported by strong private consumption (+8 p.p.), but monthly data point to a sharp deterioration. Industrial output declined by 8.1% in January due to damage to energy infrastructure. In construction, a divergence has emerged: engineering works are expanding, while building activity declined for the first time in three years. The transport sector continues its structural shift from rail to road.

Key risks include energy vulnerability, a widening external deficit, pressure on fiscal liquidity, and continued dependence on external financing. Higher energy prices increase import costs, intensify inflationary pressures, and add pressure on the exchange rate, while also worsening the trade balance. At the same time, this strengthens Russia’s fiscal capacity.

The economy remains dependent on timely external financing. Any delays or shortfalls in disbursements could increase pressure on the budget and macroeconomic stability in the coming months, including as early as May-June 2026.