As recently as this summer, Ukraine's economy was forecast to grow. Now analysts expect two years of GDP contraction, and the estimated budget financing gap has jumped by $32 billion. And that is not the only piece of bad news: prices could rise faster, while real wage growth will nearly stall.
The Kyiv School of Economics (KSE Institute) presented on October 22 a sharply worsened forecast for Ukraine's development through 2029. The main reason for the revision is Russian strikes on industry, energy, ports and transport infrastructure, which are increasingly affecting production and exports.
Instead of growth, two years of economic decline
In July, KSE analysts expected Ukraine's economy to grow by 1.9% in 2026 and another 2.1% in 2027. Now the forecast has completely changed:
— In 2026, GDP could shrink by 0.3%;
— In 2027, a further decline of 0.6% is expected.
At first glance, the figures seem small. But the difference from previous expectations is significant: by 2029, Ukraine's economy could be about 6% smaller than was thought just a few months ago.
Businesses dependent on exports are suffering the most. Due to restrictions on the work of Greater Odesa ports and the shutdown of metallurgical production, analysts forecast real exports to fall by 7.4% in 2026.
The consequences affect not only large plants. When enterprises produce and sell less, they cut purchases, investments and the need for workers. The state, in turn, receives less tax revenue.
Almost $100 billion: a new problem for the state budget
The most alarming part of the forecast concerns public finances.
According to KSE calculations, the budget financing gap for 2026–2029 will reach $99.5 billion. That is $32.1 billion more than analysts expected in July.
This is not about money that has disappeared from the budget, nor about a one-year deficit. It is the projected need for additional financing over four years — already taking into account existing commitments from international partners and planned financial instruments.
In KSE's baseline scenario, it is assumed that Ukraine will receive the missing funds as additional foreign loans. However, agreements on their provision have not yet been reached.
At the same time, the destruction of production capacity could reduce tax revenues by $18.4 billion over four years compared with previous expectations.
This creates a difficult situation: the economy yields less revenue for the budget, while defense spending remains high and rebuilding destroyed infrastructure requires additional money.
Wages and prices: consequences for ordinary Ukrainians
The worsened economic forecast has also affected estimates of the population's purchasing power.
According to KSE's full report, real wage growth could slow from 12.6% in 2026 to just 1.7% in 2027.
We are talking specifically about real incomes — that is, wages adjusted for inflation. Nominally, workers may receive more hryvnias, but a significant part of the increase will be eaten up by rising prices for goods and services.
According to KSE's forecast, annual inflation will exceed 13% and remain above that level through the third quarter of 2027 inclusive.
The rise in food prices may be especially noticeable. Food inflation is estimated by analysts to reach 14% by the third quarter of 2027 — more than four percentage points higher than the previous forecast.
The reasons are related not only to damage to energy and logistics. After the losses of 2026, farmers may reduce sown areas and the use of fertilizers, creating additional pressure on prices for the next harvest.
Thus, even with a relatively small GDP contraction, the population may face an unpleasant combination: slower income growth and a persistently high cost of living.
The hryvnia will also be under pressure
The currency forecast has also worsened. KSE expects the average hryvnia exchange rate at 47.8 UAH per dollar in 2027, compared with 47.2 UAH in the previous forecast.
This is an analytical estimate, not a fixed future rate. Its actual dynamics will depend, among other things, on the policy of the National Bank and the timely receipt of international assistance.
To keep inflation in check, analysts allow for a further increase in the NBU's key policy rate to 17% by the end of 2026. Monetary policy easing is now expected no earlier than the end of 2027.
For businesses, this means a risk that expensive loans will persist, and for the economy as a whole, a slower recovery in investment.
Return to growth is possible, but the forecast depends on the war
Despite the worsening estimates, KSE does not rule out an economic recovery. In the baseline scenario, analysts forecast GDP growth of 4.40% in 2028 and 5% in 2029.
However, this scenario rests on an important assumption: the full-scale war will end in the second half of 2027. This is not a prediction of when hostilities will cease, but a condition used for economic calculations.
If the war lasts longer, Ukraine's financing needs could be significantly higher, and the already planned support will be insufficient.
Earlier, investment group ICU also warned of the possibility of a two-year contraction of Ukraine's economy due to the destruction of industry and export infrastructure.
KSE's new forecast adds yet another serious problem to this picture: even if the war ends, Ukraine will need large-scale financial support to maintain budget sustainability and restore the economy.
At the same time, neither the GDP contraction, nor the hryvnia exchange rate, nor the amount of future financial assistance are predetermined. Much will depend on the situation at the front, the state of infrastructure and decisions by international partners.
Based on materials from: KSE Institute, October 22, 2026. Full source: Ukraine Macroeconomic Handbook, Q4 2026.
