Page 6 - Ukraine OUTLOOK 2025

had reached about $800bn as of October, President Zelenskiy said, and Ukraine has no prospect of funding its reconstruction should the war end. The US is pushing for the $300bn of frozen Russian assets to be seized to pay for this work, but the EU remains nervous about the possibility of undermining trust in the euro and destabilising the European financial system, and is very unlikely to confiscate these funds.
Zelenskiy noted that what Russia earns from the use of its shadow fleet is many times greater than the aid Ukraine receives from all of its allies, as this fleet earns $11-12bn per month, and called again to strengthen sanctions.
Private consumption and exports drive growth: Economic growth in 2024 was broad-based, with nearly all demand-side GDP components contributing positively. Private consumption was the key driver, bolstered by a rapid recovery in household incomes. “Intense competition for labour in the private sector forces businesses to revise salaries to retain employees,” analysts noted.
Exports also played a critical role, supported by the smooth operation of Ukraine’s Black Sea shipping route. This alternative to the grain corridor, unilaterally suspended by Russia in 2023, has facilitated uninterrupted trade flows. However, government consumption made only a minimal contribution to growth amid ongoing fiscal consolidation.
Ukraine’s economy has now recovered to around 78% of its pre-war real GDP level. However, much of this recovery is due to the outsized contribution of the defence sector. By contrast, the production of non-defence goods and services remains below 70% of pre-war levels, reflecting the lingering effects of the war on the broader economy.
Fiscal constraints and weakening consumption in 2025: The outlook for 2025 suggests a deceleration in growth, with GDP expected to rise by 3.4%. One major headwind is the government’s plan to narrow the budget deficit from 23% of GDP in 2024 to 19% in 2025, a move that will curb public consumption and social transfers.
Private consumption, a key growth engine, is also set to lose momentum. Although competition for labour is likely to sustain wage growth in the private sector, public sector wages will stagnate, with the minimum wage remaining unchanged from 2024 levels. Furthermore, a recent hike in the military levy on household incomes, from 1.5% to 5%, will reduce disposable incomes.
“Private consumption dynamics are likely to weaken marginally due to decelerating income growth,” economists warned, adding that these factors will have a dampening effect on household spending.
Export challenges loom: Exports are expected to remain a key contributor in 2025, provided the Black Sea shipping routes continue operating without significant disruptions. However, analysts caution that sustaining the pace of export growth seen in 2024 will be difficult.
“This year was the first full year during the war when Ukrainian producers could take full advantage of the available sea transportation infrastructure,” experts observed. The one-off effect of this adjustment is likely to fade, and other challenges – such as disruptions to electricity supply – could further
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