ICU downgrades Ukraine's GDP growth outlook from 3.4% to 3% in 2025

MOSCOW. April 8 (Interfax) - The ICU Investment Group has downgraded Ukraine's GDP growth outlook for 2025 by 0.4 percentage points to 3%, as it views the 3.5% growth forecast as somewhat optimistic, Ukrainian media said, citing the group website.

As reported, Ukraine's economic growth weakened significantly in 2024 due to a sharp decline in harvest (which affected both agriculture and the food industry) and the real GDP grew by 2.9%. Another reason was a decline in public sector consumption caused by the budget deficit reduction to 24% of GDP compared to 27% a year earlier.

"Agricultural production should grow significantly this year if adverse weather does not repeat itself, however, the reduction of public expenditures (relative to GDP) will continue to hold back economic recovery. We believe that our previous forecast of 3.4% GDP growth in 2025 is somewhat optimistic and downgrade it to 3.0%," the ICU said.

Moreover, the investment group does not expect a significant acceleration in the pace of economic recovery next year unless the security situation improves drastically.

"Given this, we believe that an increase in the nominal value of Series B Eurobonds is highly unlikely, since the real GDP would hardly cross the threshold fixed in the terms of the bond issue in 2028," it said.

Regarding the economic results of 2024, the ICU noted that the economy remained heavily dependent on expenditures of the public sector, which accounted for 38% of consumption, much higher than 18% in 2021. In terms of sectors, public administration (including defense) had a significantly larger share compared to the pre-crisis year - 20% versus 6% in 2021.

The only component of demand that made a significant positive contribution to economic growth was private household consumption, which grew by 6.8% (although the pace slowed to 4.2% in the fourth quarter) owing to the rapid growth in private sector wages. Gross fixed capital formation also had a positive, but much less noticeable, effect on the economic growth. At the same time, the contribution of public sector consumption and net exports to GDP was negative. Among the manufacturing sectors, the 7.3% decline in agricultural output had the most negative impact on the economy, it said.

A somewhat unexpected reduction in value added was also observed in trade, despite a significant increase in private consumption. Power supply also decreased due to damage to infrastructure. Production in all other sectors increased last year, the ICU said.

As reported, the World Bank also downgraded its outlook for Ukraine's GDP growth in 2025 in the Global Economic Prospects published in January, from 6.5% in the June report to 2%, but upgraded it for 2026 to 7% from 5.1%.

At the end of January, the National Bank of Ukraine downgraded its forecast for GDP growth this year to 3.6% from 4.3% in the previous macroeconomic forecast issued in October.

The Institute for Economic Research and Policy Consulting forecasted Ukraine's economic growth at 3% in its annual report released in early January.

However, the Kiev School of Economics retained its estimate for the real GDP growth this year at 3.6% in the January macroeconomic forecast, as was the case in its macroeconomic forecast published in October.