KSE Institute has published the Q4 2026 edition of the Ukraine Macroeconomic Handbook, presenting an updated forecast for Ukraine’s economy through 2029 that covers the remainder of the full-scale war and the subsequent reconstruction and recovery period.
Intensified Russian attacks on Ukraine’s critical infrastructure and productive capacity in recent months have substantially worsened the economic outlook and amplified major risks to macroeconomic stability. Strikes on ports, logistics infrastructure, energy facilities, and industrial assets are disrupting production and exports, with particularly severe consequences for the agricultural and metallurgy sectors.
As a result, real GDP is now projected to contract by 0.3% in 2026 and 0.6% in 2027, compared to growth of 1.9% and 2.1%, respectively, in the Q3 forecast. By the end of the forecast period in 2029, the economy is projected to be approximately 6% smaller than previously expected. The blockade of the Greater Odesa ports and the shutdown of steelmaking are projected to reduce real exports by 7.4% in 2026. The resulting deterioration in economic activity also weighs on fiscal revenues and complicates Ukraine’s ability to sustain the war financially.
Ukraine’s financing needs have increased substantially, and significant additional external support will remain necessary even after the war ends. The budget financing gap is now estimated at $99.5 billion over 2026-29, taking into account support from existing commitments and planned financing instruments – an increase of $32.1 billion compared to the Q3 forecast. The baseline forecast assumes that this gap will be covered by additional foreign loans that have not yet been committed.
Over the forecast period, the destruction of productive capacity is projected to reduce tax revenues by $18.4 billion relative to the Q3 forecast, contributing to the increase in financing needs. At the same time, defense spending needs remain exceptionally high and will only decrease gradually after the war, while the capacity to finance the budget through domestic borrowing is assessed to have diminished.
Crucially, these estimates assume that the full-scale war ends in the second half of 2027, an assumption maintained from the previous forecast. A longer conflict would substantially increase financing needs and render the projected financial support insufficient.
The deteriorating economic outlook and widening trade gap are also creating additional challenges for macroeconomic management, particularly for monetary and exchange-rate policy. The National Bank of Ukraine (NBU) faces an increasingly difficult trade-off between containing inflation and supporting economic activity.
Growing disruptions to production and logistics are adding to inflationary pressures even as economic activity weakens. The inflation outlook has worsened considerably since the Q3 forecast, with inflation now expected to plateau above 13% through Q3 2027 due to pressures from fuel, core, food, and administered prices.
These developments warrant further monetary tightening and will delay easing to late 2027. Maintaining exchange-rate stability remains critical to anchoring inflation expectations and preserving confidence in the hryvnia.
The NBU’s ability to manage these competing pressures will depend heavily on the timely provision of external financial support, which is essential for sustaining international reserves and limiting pressure on the exchange rate.
