Economy posts best growth result in a year in Q3

GDP growth accelerates: Ukraine's GDP grew 2.1% on a year-on-year basis in Q3, following 0.8% growth in the previous quarter. Q3's reading was the strongest since Q3 2024, driven by a strong fiscal impulse and improved energy conditions compared with a year earlier. In seasonally adjusted quarter-on-quarter terms, GDP expanded 0.8% in Q3, following 0.2% growth in the prior quarter.

Government spending buttresses economic growth: Compared to the previous quarter's data, readings in Q3 improved for government consumption (+12.2% in annual terms vs -0.5% in Q2), fixed investment (+11.5% vs -2.5% in Q2), exports of goods and services (-15.4% vs -15.7% in Q2) and imports of goods and services (+10.5% vs +4.5% in Q2). In contrast, the reading for private consumption worsened in Q3 (+6.7% vs +9.0% in Q2). Government consumption led the acceleration, supported by substantial international financing, and fixed investment rebounded, boosted by construction, agricultural processing and defense-related projects. In contrast, net exports weighed on GDP growth, as exports continued to decline amid low agricultural inventories, weak demand for metallurgical products and new terms of trade with the EU. Moreover, imports surged on increased purchases of machinery and metals due to a ramp-up of defense capabilities and infrastructure reconstruction.

Economy to expand at a faster rate: Year-on-year growth is expected to strengthen in the final quarter of 2025, supported by a favorable base effect, a solid harvest and elevated government spending. Looking ahead at 2026, the economy should gain further momentum compared to 2025: Exports are set to rebound, while EU financing and lower inflation will likely provide tailwinds to fixed investment and private consumption. Still, economic growth will remain constrained by high imports and continued disruptions to energy, logistics and broader infrastructure from Russian strikes.

Panelist insight: Commenting on the outlook, Andrew Matheny and Johan Allen, analysts at Goldman Sachs, stated: “Forecasts for Ukrainian growth are sensitive to assumptions about the likely duration of the Russian war and the credibility and durability of a potential peace deal. We do not take a view on the course of the war or if/how it may be resolved but have laid out two scenarios for Ukraine’s economy: 1) a baseline, involving a de facto resolution to the war over time, entailing a 5-6% peace dividend in year one and 3% trend growth thereafter; and 2) an upside growth scenario, with a rapid and credible de jure resolution to the war that implies an 8-10% peace dividend and 5% trend growth rate. Nevertheless, as time passes, risks become tilted towards a later resolution to the war, implying less return migration and a smaller peace dividend.”

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