In January, KSE Institute published the Ukraine Macroeconomic Handbook (Q1 2026), which assesses Ukraine’s macroeconomic trajectory for 2025–2028 under continued Russian aggression. The forecast accounts for a sharp increase in expected international financial support, which materially alters the balance of macroeconomic risks, while maintaining its core assumption that the war will come to an end by late 2026. 

The total amount of external grants and loans over 2026-28 is estimated at nearly $160 billion thanks to new commitments from Ukraine’s partners — most notably the €90 billion EU loan, alongside an expected new IMF program and financing under the EU’s next Multiannual Financial Framework. This support allows for the financing of the state budget through 2028, despite exceptionally high wartime needs. The cumulative budget deficit over 2026–2028 is projected at $113.2 billion — largely driven by persistently high defense and security spending, peaking at $103 billion in 2026, while confirmed and likely budget financing sources amount to $112.2 billion. Thus, new foreign funding, including €30 billion in EU macrofinancial assistance and a portion of the Union’s €60 billion fund for Ukraine’s defense-industrial capacity helps to close the fiscal financing gap of $65 billion previously identified by the IMF for 2026-29.

International support also mitigates the impact of Ukraine’s structural trade deficit on external financing needs. In 2025, the trade deficit widened sharply — by 54.6% y-o-y over the first eleven months — and is estimated to have reached $49.0 billion for the full year. Imports are expected to remain elevated, in part due to financing for defense-industrial capacity building. At the same time, new partner inflows are projected to cover external financing needs and enable the accumulation of nearly $25 billion in international reserves over 2025–2028, bringing total reserves to around $82 billion by end-2028 — a markedly more favorable outcome than in previous projections.

Near-term growth prospects remain fragile, while medium-term prospects are robust. Real GDP growth in 2025 is estimated at 1.9%, reflecting intensified Russian attacks on energy infrastructure, which weighed on production and private consumption, while driving up imports. Renewed strikes on the energy system represent the most acute downside risk: while losses could remain limited if firms successfully adapt, prolonged or localized disruptions could result in output losses on the order of 2–3% of GDP. At the same time, new EU financing provides a meaningful offset, allowing for an upward revision of growth to 3.2% in 2026. In the post-war period, a shift away from exceptionally high government consumption toward investment and reconstruction is expected, with real GDP growth accelerating to around 5% per year.

Ukraine’s public debt increased substantially during the war, reaching $197.4 billion in November 2025, and will remain elevated. However, financing mechanisms put in place by international partners are designed to preserve debt sustainability. Excluding obligations whose repayment is conditional on the receipt of reparations from Russia, the debt-to-GDP ratio is projected to stabilize at around 81% in 2026 before declining to approximately 77% by 2028.

Headline inflation has continued to ease from its peak of 15.9% in May 2025, reaching 8.0% by year-end, reflecting a combination of supply-side factors, a broadly stable exchange rate, and the NBU’s tight monetary policy stance. Inflation is expected to decline further in 2026 to around 7.4%, with a possible moderate increase in 2027 as post-war reconstruction gains momentum. The hryvnia remained broadly stable in 2025, while the forecast points to a gradual depreciation toward around UAH 44 per USD by end-2026.

The Q1 2026 edition of the Ukraine Macroeconomic Handbook provides a comprehensive assessment of economic activity, the external sector, the budget, public debt, inflation, monetary policy, exchange rate dynamics, and the labor market. It also includes special sections on new international financial support, the new labor code, and a comparison of the macroeconomic trajectories of Ukraine and Russia.