A turbulent 2025 is on the horizon. Discover why Ukraine's economy is set to slow down and what implications this holds for everyone.

In reality, it is currently difficult to see the end of the war on the horizon. President Volodymyr Zelensky states that the Ukrainian Victory Plan must first be implemented, only then can they approach the realization of the Peace Formula — both are complex, ambitious documents that seek broad international consensus. While the Victory Plan calls for military and economic strengthening of Ukraine, the Peace Formula outlines points to prevent future military aggression. However, both documents lack international consensus.

Previous expectations for the end of the active phase of hostilities in 2024 have not yet materialized. The intensity of fighting, averaging 150-200 clashes per day, has remained consistently high for quite some time. Therefore, international institutions do not exhibit excessive optimism, offering realistic assessments of the economic situation in Ukraine.

“The IMF and the World Bank had previously projected that military actions would conclude by mid-[next] year, but they will likely continue throughout 2025 and may extend into 2026,” reports Dmytro Boyarchuk, executive director of the Case Ukraine analytical center.

Energy is everything

The growth of Ukraine's gross domestic product (GDP) over the first eight months of 2024 is estimated by the Ministry of Economy at 3.9%, which aligns with government expectations. However, it could slow down to 3% (according to IMF forecasts) or 3.2% (World Bank) and carry over into the next year.

One fundamental reason for this is the complex and unpredictable situation in the energy sector, as Ukraine is left with approximately 20 GW of electricity generation capacity instead of the pre-war 55 GW.

“The energy situation is quite serious following the strikes in spring and summer; outages significantly impact several sectors of the Ukrainian economy,” says economist Dmytro Boyarchuk.

“As the winter season approaches, the issue of energy independence for businesses becomes more pressing. This year, power supply disruptions affected the operational activities of 8 out of 10 of our companies,” shares Anna Derevyanko, executive director of the “European Business Association.” “As a result of the outages, 67% of companies were forced to suspend operations, 60% saw an increase in production costs, 48% experienced changes in work schedules, 36% reduced production or service provision, 11% faced contract disruptions, and 3% completely halted operations.”

Recently, alarming sentiments regarding the electricity situation were added by Ivan Fedorov, head of the Zaporizhzhia Regional State Administration, as Zaporizhzhia is an important industrial hub.

“I tell everyone that we must prepare for the possibility of having no electricity at all. It may not be pleasant that we operate with such categorical statements, but we are preparing for the worst. If things improve, that would be great,” he said.

On October 28, scheduled power outages were introduced in Sumy and Poltava regions, although the state electricity grid operator “Ukrenergo” assures that this is a necessary and temporary measure, as repairs need to be carried out following Russian shelling, after which electricity will be restored.

President Zelensky, in turn, stated that if Moscow and Kyiv agreed to stop strikes on energy infrastructures, it would be a significant step towards de-escalating the current armed conflict.

“We saw during the first World Summit that a decision regarding energy security could be made. In other words: we do not attack their energy infrastructure, and they do not attack ours. Could this lead to an end to the active phase of the war? I think so,” Zelensky said during a briefing in Kyiv.

“While it is currently impossible to make precise forecasts, there are certain factors beyond the control of energy sector professionals — future strikes on energy facilities, which are likely to continue, and weather conditions,” says Daria Orlova, an analyst at the consulting firm Expro Electricity.

“If everything remains as it is now and there are no new significant destructions, we will avoid outages or they will be minimal. However, if there are again massive strikes, especially on nuclear power station substations, then outages will be more substantial,” she adds.

Back in September, another UN report predicted that power outages in Ukraine during winter could last from 4 to 18 hours daily.

“This winter will be very challenging. People may face constant power outages across the country. Any new attacks that lead to longer outages could have catastrophic consequences,” stated then the head of the UN Human Rights Monitoring Mission in Ukraine, Danielle Bell.

Work is currently underway to increase import capacity for electricity from neighboring countries from 1.7 GW to 2.2 GW, which should significantly aid the Ukrainian economy and households. So far, the Ministry of Energy has reached an agreement with the European Union for imports at the level of 2.1 GW. Additionally, Ukraine will have a guaranteed capacity of 250 MW for emergency assistance flows from the EU.

Ultimately, timely and comprehensive repairs to energy infrastructure are hindered by the mobilization of military-eligible men.

“Mobilization is a very pressing issue for the energy sector, although there are provisions for reservation,” emphasizes analyst Daria Orlova. “The problem is also that young specialists and students from energy faculties are leaving abroad [for education].”

Burning in all major sectors of the economy

The situation is complex and unpredictable not only in the energy sector. The Ukrainian metallurgy sector is also a source of great concern. In this context, the battle for Pokrovsk, a city in the western part of Donetsk region, plays a significant role.

“Unfortunately, Russians have already entered Selidovo; they are consolidating there,” stated recently Major General of the Armed Forces of Ukraine Dmytro Marchenko. “I think they will soon encircle it and fully capture it, giving them a tactical advantage over Pokrovsk. This is very bad for us.”

The fact is that this location houses the “Pokrovsk” mining management — a key supplier of coking coal, which Ukrainian steel production depends on. Over 90% of Ukrainian metallurgy uses coking coal as raw material. Therefore, losing control over Pokrovsk and its industrial capacities could lead to a halving of steel production — from the expected 7.2 million tons this year to 3.5 million tons annually in the future, or even less, as projected by the association “Ukrmetallurgprom.”

The agricultural sector is also facing a challenging situation.

“It is likely that the agricultural harvest will not be collected until next year,” says economist Dmytro Boyarchuk from the Case Ukraine organization. “Our port and border crossing capacities currently exceed our export capabilities.”

Typically, it was the other way around — there was enough product, while the issue lay with export logistics.

By the end of the second decade of October, only 42.8 million tons of grain and leguminous crops had been harvested from a sowing area of 17.7 million hectares. For comparison, in 2023, 59.8 million tons of these crops were harvested from an area of 11 million hectares. Two reasons account for this reduction — drought this year and a lack of manpower due to widespread mobilization.

Additionally, the state budget for 2025 is again focused on defense expenditures — these will account for 26.3% of GDP, compared to 22.6% of GDP in 2024. Clearly, these expenditures are a priority, but they do not allow the government to support the economy through state investments or tax relief. On the contrary, taxes are increasing.

“The risks of economic growth slowing in 2025 are rising. Due to the planned reduction of the budget deficit relative to GDP [essentially, cutting some civilian expenditures and raising taxes], there will be no fiscal impulse for economic growth next year,” comments Vitaliy Vavryshchuk, head of macroeconomic research at ICU group. “Also, the budget plan currently does not include an increase in minimum wages, and the recovery of private domestic consumption will be slower. Exports provide a good impulse for the economy's recovery this year; however, the prospects for significant growth next year are currently bleak.”

Consumer clouds

The upcoming year will be challenging for Ukrainian consumers. Risks of further devaluation of the hryvnia, and thus rising consumer prices, have not dissipated. On the contrary, prices will continue to rise.

Ukrainians are already responding to the current cycle of price increases. According to a study by Gradus, 64% of citizens now prefer cheaper products, and 48% have started cooking at home more often