Ukraine’s economy is set to contract for the first time since Russia’s full-scale invasion, the National Bank of Ukraine said on Oct. 29, revising its 2026 growth forecast to a 0.4% decline as a months-long seaport blockade and attacks on logistics and production facilities choke key sectors.
The bank had previously expected 1.8% growth. The last time the economy shrank was in 2022, when gross domestic product fell by 30% following the invasion, before a gradual recovery.
The bank attributed the downturn to Russia’s months-long blockade of seaports and escalating attacks on logistics and production facilities. The metallurgy industry has been hit especially hard, with steel production shutting down across the country. Ukraine’s Agricultural Ministry said farmers will see no profits from crop production this year because they cannot export via the Black Sea while input costs for fuel, fertiliser and land rental have risen.
The combination of Russian strikes and a fuel crisis caused by the war in the Middle East has pushed inflation into double digits. The central bank said inflation reached 10% in September and predicted annual inflation would hit 12.5% by the end of 2026, a three-year high. To cool the economy, the National Bank raised its benchmark interest rate from 16% to 16.5%, the highest since October 2023. The rate is expected to stay in place until spring 2027.
“Taking the consequences of the destruction into account, the NBU forecasts a slow recovery in economic growth in 2027-2028,” the bank said. It expects activity to be supported by public and private investment in the defence industry, localisation of weapons production financed through the EU’s Ukraine Support Loan programme, and infrastructure restoration projects.
The bank predicts that next year, Ukraine’s foreign partners will provide $52 billion in direct budget support and $37 billion for defence needs via the EU’s Ukraine Support Loan programme, after the country passed several laws this month to unlock funding from the EU and the International Monetary Fund. The country faces a projected budget deficit of nearly Hr 1.7 trillion ($37 billion).
This year, businesses are expected to lose around $10 billion due to the attacks, creating a Hr 70 billion ($1.5 billion) tax shortfall. Ukraine’s Economy Ministry is developing support programmes for companies, including a multibillion-dollar war risk insurance fund to help cover businesses from January.
Analysis
Why This Matters
- The economic contraction affects millions of Ukrainians facing higher prices and job losses amid the ongoing war.
- A shrinking economy reduces Ukraine’s ability to finance its own defence, increasing reliance on foreign aid.
- Damage to agriculture and metallurgy threatens global grain and steel markets.
Background
Russia launched its full-scale invasion of Ukraine in February 2022, causing an initial 30% GDP collapse. The economy had been recovering gradually, but intensified Russian attacks on infrastructure and exports have reversed that progress.
What to Watch
- Whether the central bank needs to raise rates further if inflation continues to accelerate.
- The effectiveness of the war risk insurance fund launching in January in reviving business activity.
- Progress of foreign aid disbursements from the EU and IMF, upon which Ukraine’s budget depends.
Checked
11 claims in this story checked against 1 source: 10 supported.
Show each claim
- SupportedUkraine faces its first economic contraction since 2022 as Russian attacks hit key industries.Kyiv Independent: “Intensified Russian attacks on Ukrainian businesses have pushed the economy into decline for the first time since 2022’s invasion shock, choking key industries”
- SupportedThe National Bank revised its 2026 GDP forecast to a 0.4% decline.Kyiv Independent: “Ukraine’s National Bank said on Oct. 29 that the country’s economy will shrink by 0.4% this year, after revising its previous forecast of 1.8% growth.”
- SupportedThe National Bank raised its benchmark interest rate to 16.5%.Kyiv Independent: “the bank hiked its benchmark interest rate from 16% to 16.5%”
- SupportedAnnual inflation is forecast to reach a three-year high.Kyiv Independent: “The NBU predicts that annual inflation will reach 12.5% by the end of 2026 — a three-year high.”
- SupportedThe National Bank attributed the decline to Russia’s months-long seaport blockade and escalating attacks on logistics and production facilities.Kyiv Independent: “The bank said the decline was caused by Russia’s months-long blockade of seaports and escalating attacks on logistics and production facilities.”
- SupportedThe last time Ukraine’s economy shrank was in 2022, when GDP fell by 30% before gradually recovering.Kyiv Independent: “The last time Ukraine’s economy contacted was the year of Russia’s full-scale invasion, which saw its gross domestic product (GDP) plummet by an astonishing 30% before gradually recovering the following year.”
- SupportedSteel production has shut down across the country as the metallurgy industry has been hit especially hard.Kyiv Independent: “The metallurgy industry has particularly suffered, with steel production shutting down across the country amid the heightened risk of deadly Russian strikes.”
- SupportedThe Agricultural Ministry said farmers will see no profits from crop production this year because they cannot export via the Black Sea and costs have risen.Kyiv Independent: “Ukraine's Agriculutral Ministry said that farmers wont see any profits from crop production this year, as they cannot export goods via the Black Sea, while costs for autumn sowing, fuel, fertilizers, and land rental payments have increased.”
- SupportedThe bank said inflation reached 10% in September, amid attacks and the Middle East-related fuel crisis.Kyiv Independent: “The attacks, combined with the fuel crisis caused by the war in the Middle East, have also caused inflation to surge to double digits, jumping to 10% in September, the bank said.”
- Partly supportedThe country faces a projected budget deficit of nearly Hr 1.7 trillion ($37 billion).Kyiv Independent: “although the country faces a projected deficit of nearly Hr 1.7 trillion ($37 billion) next year.”
- SupportedBusinesses are expected to lose around $10 billion this year due to attacks, creating a Hr 70 billion ($1.5 billion) tax shortfall.Kyiv Independent: “businesses expected to lose some $10 billion in the wake of the attacks, creating a Hr 70 billion ($1.5 billion) tax shortfall.”