OECD expects GDP growth in Ukraine to slow to 2% in 2025-2026

MOSCOW. June 4 (Interfax) - Ukraine's economic growth, which slowed to 2.9% in 2024 from 5.3% a year earlier, is expected to stand at 2% in 2025 and to remain at 2% in 2026, the Organization for Economic Cooperation and Development (OECD) said.

"Activity has continued to recover but at a slowing pace. Growth is projected to moderate to 2% in 2025 and remain at 2% in 2026 if security is not restored," Ukrainian media cited the OECD as saying in its Economic Outlook.

Growth will be supported by international assistance, defense spending and domestic private demand, it said.

Workforce shortages will continue to constrain growth, and uncertainty remains exceptionally high, the OECD said.

"A worsening security situation or less external support pose downside risks to the outlook. Conversely, if security can be restored sooner, reconstruction and recovery would accelerate," it said.

In the face of high defense and reconstruction spending needs, public revenues can be bolstered by pursuing reforms to tax administration to better support compliance, reducing exemptions and narrowing the coverage of the simplified tax regime, it said.

According to the OECD's Economic Outlook, the fiscal deficit is forecast to be around 20% of GDP in 2025 and 2026. External support, including the EU-financed Ukraine Facility, will cover much of the financing needs through 2025.

"Inflationary pressures are expected to remain elevated in the near term due to tight supply, and as rising labor costs and higher energy prices for producers are passed into retail prices," the OECD said.

The organization's experts expect average annual inflation in Ukraine to reach 13.2% in 2025 from last year's 6.5%, then decelerating to 7.1% in 2026.

As reported, the International Monetary Fund in late February downgraded its Ukraine GDP growth forecast for 2025 by 0.5 percentage points to 2%-3%. The World Bank then cut its economic growth forecast for Ukraine to 2% from 6.5%.

In April, the National Bank of Ukraine lowered its expectations for Ukraine's economic growth this year to 3.1% from 3.6% in its previous macroeconomic forecast in January, and from 4.0% to 3.7% next year.

In May, the European Bank for Reconstruction and Development also downgraded its GDP forecast for Ukraine, for the second time this year. It now stands at 3.5% for 2025 and at 5% for following year. The European Commission, for its part, lowered Ukraine's GDP growth forecast for 2025 to 2.0% from 2.8% expected in November, and for 2026 to 4.7% from 5.9%, respectively,