Ukraine's economy is set to slow further as headwinds remain intense. The energy crisis caused by russia’s terror attacks on civil infrastructure is interrupting production cycles in many sectors and damaging consumer sentiment. If safety risks don’t subside dramatically in 2026 – which is our conservative baseline assumption – the economy will struggle to grow, Ukrainian investment bank ICU said in its latest report.

Nonetheless, the continued inflows of foreign financial aid imply the economy will remain on a footing that is sufficiently strong and risks to a broad macroeconomic stability are reasonably low.

The EU decision to grant a €90bn loan to Ukraine for 2026-27 came as a huge relief, yet further clarification that only €30bn is going to be earmarked for budget support is somewhat disappointing. We expect foreign grants and concessional loans will remain sufficient to alleviate fiscal concerns in 2026, but a question mark remains about the adequacy of the aid size in 2027.

Rapid deceleration of inflation is one of the brightest spots of current economic realities, and we expect inflationary pressures will remain muted through 2026. NBU’s recent guidance on the key policy rate path came as a big surprise to us as we expected more bold moves to ease monetary conditions. We interpret NBU key rate signals as a confirmation that it intends to further weaken the hryvnia in 2026 in an important deviation from last year’s policy of, effectively, a fixed exchange rate.

Slowing inflation, pressures to devalue from the MinFin and the IMF, and an expected reduction in foreign aid in the future will likely reduce NBU’s determination to maintain a strong hryvnia policy. The record-high imbalances of external accounts will remain the key vulnerability of the economy, but, likely as in previous years, the C/A deficit will remain fully covered with foreign aid. Following last year’s spike, NBU reserves are set to remain at historic highs, but are unlikely to grow further.

The fiscal deficit widened last year, but we expect that will reverse in 2026. Over 98% of the gap will be covered with external financing. The IMF program will contain sensitive tax issues, as the fund will want to ensure that the country can mobilize more resources domestically should the expenses on defense increase vs the current plan.