Ukraine's Central Bank Revises 2026 Economic Outlook
The National Bank of Ukraine (NBU) has updated its economic forecast for 2026 in response to the ongoing energy crisis. The bank now projects an average annual electricity deficit of 6% for that year, which is double the level anticipated in its previous October forecast. This energy shortfall is expected to reduce the growth rate of real Gross Domestic Product (GDP) by 0.4 percentage points. Consequently, the new GDP growth forecast, accounting for the deficit, stands at 1.8%, whereas it would have reached 2.2% without the energy constraints.
NBU Governor Andriy Pyshnyi noted that 'without the energy deficit, our forecast would not be 1.8%, but 2.2%'.
Beyond slowing economic growth, the energy deficit will also affect inflation. The NBU forecasts inflation will be 7.5% by the end of 2026, slowing to 6% by 2027. The bank's long-term inflation target remains 5%.
How the Energy Crisis Fuels Inflation
The inflationary impact of damage to the energy infrastructure will occur through two primary channels:
- Production costs will rise due to the use of generators and supply disruptions, leading to higher prices for goods and services.
- The NBU's calculations include a technical assumption that electricity prices for households will increase after the current heating season ends, with a forecast for gradual adjustments of gas, heating, and hot water tariffs toward market levels.
The NBU's revised forecasts underscore the severity of Ukraine's energy situation and its direct impact on the country's economic stability. The nation's economy continues to operate under the strain of war, making energy security a critical factor for recovery. The growing electricity deficit and associated inflation risks pose additional challenges for households and businesses, which in turn affects the overall economic climate. Given these factors, it is crucial for the government and the NBU to continue implementing measures to stabilize the energy sector and support the economy during the crisis.