A year of new challenges: the dollar exchange rate, inflation, GDP, and financial support for Ukraine in 2025.

Optimists and Pessimists: When Will the War in Ukraine End — Analysts' Assessments

Experts base any economic forecasts on scenarios that either anticipate the continuation of active hostilities in Ukraine throughout 2025 or the conclusion of the active phase of the war around the second half of 2025.

What opinions have emerged regarding these scenarios? In the baseline scenario for Ukraine, the IMF expects the war to conclude by the end of 2025. However, the IMF also provided a negative scenario for Ukraine, suggesting that the conflict could last until mid-2026.

Raiffeisen Bank shared its forecast. "Our main hypothesis, which underpins the macroeconomic forecast, is an improvement in security risks in the second half of 2025," commented Sergey Kolodiy, the chief macroeconomic analysis expert at Raiffeisen Bank.

Financial analyst and member of the Ukrainian Society of Financial Analysts, Andrey Shevchishin, also speaks of a possible end to the active phase of the war. "In my forecast, I anticipate the cessation of active hostilities in the first half of 2025. I associate this with the impossibility of budget financing for subsequent waves of mobilization." This means the country must finance defense through its own tax revenues. Continuing military actions will require new waves of mobilization, which would extract labor resources from the economy, already in short supply. Additional resource extraction would lead to a sharp economic decline and a drop in budget revenues. Consequently, there will be a need to transition to a different financing model, a non-market one, referred to as military rails for the economy," comments Andrey Shevchishin.

GDP Growth: What Will Support the Economy in 2025

"We have a fairly optimistic outlook for 2025, expecting economic growth of 4.9%. This will be supported by a noticeable increase in real incomes of the population observed in 2024, which will provide a positive impetus for trade and the service sector. We see good prospects for the development of machine engineering in terms of weapon production, as significant expansions in both the nomenclature and volumes of weapons produced in Ukraine have been announced. These are complex industries with a relatively high share of added value," says Sergey Kolodiy.

Economist Maksym Samoyliuk from the Center for Economic Strategy noted: all related risks are tied to the war: will the energy system hold up, will the country maintain access to seaports, and will there be a new large wave of refugees? "GDP growth will continue next year, but it should be understood that this is more about recovery rather than growth. Due to the full-scale invasion, Ukraine's economy contracted by a third, and then gradually began to recover. The average forecast of non-governmental experts for 2025 is a GDP growth of 3.7% compared to the previous year. One of the key growth factors remains unprecedented budget stimuli: funds spent from the state budget on military and civilian expenditures. This is only possible due to significant volumes of foreign financial assistance," notes Maksym Samoyliuk.

The main question now is what the policy of the USA will be under the new administration regarding support for Ukraine.

In 2025, prices will continue to rise. "The inflation backdrop will be quite strong in the first half of 2025, but then we expect a gradual decrease in the CPI to 8% by the end of the year," noted Sergey Kolodiy. ICU predicts inflation at 7% in 2025. According to Andrey Shevchishin, the average annual inflation will be around 13%. "I incorporate a 30% increase in tariffs in my forecast after the heating season ends. Tax increases, along with rising tariffs, will all be factored into consumer prices," says Shevchishin.

The situation with external financing looks better for Ukraine next year. Analysts pointed out that risks here are minimal, and Ukraine is expected to receive about $39 billion from partners. Inna Provotar, head of management accounting and business analysis at OTP Bank, noted that due to the war, the pace of economic growth will be limited, and external factors, particularly assistance from international partners, will play a significant role in recovery.

"The prospects for receiving assistance from international partners in 2025 appear optimistic. Ukraine has already reached agreements for a significant volume of financing, with expectations of attracting over $38 billion to cover critical non-military budget expenses," says Inna Provotar. According to her, cooperation with other international financial institutions, particularly the World Bank, continues, which will facilitate the implementation of important projects, especially in the energy sector and infrastructure recovery.

According to Maksym Samoyliuk, Trump's victory in the US elections mobilized partner efforts to ensure Ukraine receives funding. "For 2025, more than $80 billion has already been confirmed from various partners and through different programs — but these funds are provided with the understanding that in the worst-case scenario, we must stretch them into 2026 and even 2027. Therefore, the main question now is what the policy of the USA will be under the new administration regarding support for Ukraine. This will determine how we manage available resources next year," notes Maksym Samoyliuk.

The Hryvnia Declines: What Will the Exchange Rate Be in 2025 and What Will Influence Currency Fluctuations

Taras Lesovoy, head of the treasury department at Globus Bank, noted that the first and foremost risk factor for the national currency is military uncertainty and weak economic and political predictability (ranging from external "pressure" to capitulation, which could plunge the country into a state of shock leading to economic stagnation and inflation). In his opinion, the consequences of military aggression and their impact on the economy, including public sentiment leading to increased demand in the cash market, may also pose a risk factor for the hryvnia. Additionally, there is a risk of reduced financial support for Ukraine, although this is likely to affect not 2024, but subsequent years. "However, we perceive all risk factors as warnings. In the first quarter, we could face considerable inflation that will pressure the currency market. The regulator may use currency interventions to smooth out the exchange rate situation on the foreign exchange market to prevent inflationary growth," believes Taras Lesovoy.

In 2025, analysts and economists expect exchange rate fluctuations at 42-45.5 hryvnias per dollar.

Raiffeisen Bank expects that by the end of 2025, the dollar exchange rate will be 45.5 UAH, while the average annual exchange rate in 2025 will be 43.3 UAH. OTP Bank also anticipates moderate devaluation. "The situation with the exchange rate remains unchanged while the war continues in the country, so we expect a controlled devaluation of up to 10% per year. In 2025, we expect both seasonal factors affecting the exchange rate and excess demand due to military procurement, energy needs, and everything necessary for the country to function during wartime, which will pressure the national currency. The behavior of the national currency will depend on the flexible management of the exchange rate by the regulator and, of course, on the support of international partners and the increase/decrease of foreign exchange reserves. However, we believe the regulator will curb any panic in the markets and manage the situation," noted Anton Kurynnyi, dealer in the global markets department at OTP Bank.

Meanwhile, according to Vitaliy Vavryshchuk, after a slowdown in inflation in the second half of 2024, the NBU may be more open to moderate devaluation of the hryvnia. According to ICU's baseline scenario, the hryvnia's devaluation rate next year will not exceed 10%.

Of course, in the matter of exchange rate fluctuations, experts also consider the factor of whether the active phase of the war in Ukraine continues or concludes. Should peace be established in the country, experts do not rule out the scenario where the hryvnia may even strengthen.