The International Monetary Fund (IMF) revised its forecasts for the end of intense hostilities in Russia's war against Ukraine, pushing back the likely end of the conflict by another year. According to the updated IMF Memorandum, the base scenario now envisages the end of active military operations no earlier than the last quarter of 2025, which will have a long-term negative impact on the economic stability of Ukraine.
The impact of the war on the economy
While the IMF's baseline scenario indicates that the war will mostly affect areas with already reduced economic activity, the lack of a clear end to the conflict continues to hold back growth. Despite this, moderate economic growth is expected to be maintained in Ukraine, although its pace will be lower than previously predicted.
The IMF's updated forecast notes that a protracted war will contribute to continued uncertainty and increase economic challenges. These factors include labor shortages, rising defense spending, increased imports to rebuild infrastructure, and changes in population dynamics.
Economic forecast for 2024
The IMF predicts that in 2024 the real GDP growth of Ukraine will be 3%. However, this growth may slow in the third quarter due to energy shortages estimated at 3-4 GW during the winter months. Inflation will continue to rise, reaching a level of 9% by the end of the year, which will be associated with higher energy prices and rising labor costs.
Despite the energy crisis and other difficulties, external financing will help increase Ukraine's international reserves to 42.6 billion US dollars. This will support the macroeconomic stability of the country against the background of the war.
Prospects for 2025
According to IMF forecasts, inflation in Ukraine will decrease to 7.5% in 2025 due to the easing of spending pressure, and economic indicators will stabilize somewhat. However, the current account deficit will widen to US$27.1 billion, or 14.3% of GDP, due to continued import needs.
Despite this, external financial support is expected to increase reserves to 44.9 billion US dollars. This indicates that international partners will continue to actively support Ukraine financially even against the background of a protracted war.
Post-war recovery
After the end of the active phase of the war, the economic recovery of Ukraine will be slowed down due to deep "scars" from the long conflict. However, the medium-term outlook is encouraging thanks to a strong reform program and Ukraine's gradual integration into the European Union.
The IMF also predicts that in the medium term, investment and reconstruction, as well as confidence in Ukraine's future as part of the European community, will contribute to the recovery of productivity. At the same time, the cumulative loss of real GDP in the period until 2027 will be 2%, and until 2033 - 2.7%, which indicates the serious economic consequences of the war.
