End of Russia's war against Ukraine: IMF does not rule out combat until mid-2026

The International Monetary Fund has developed two scenarios for Ukraine's economic development depending on the duration of the war. In the worst-case scenario, the war could last until mid-2026, according to the Fund's memorandum.

The baseline forecast scenario assumes the war will end by late 2025.

Economic consequences of the winter energy deficit may be less severe than previously predicted due to business investments in their own generation capacity, increased import potential from Europe, and repair efforts.

A wider current account deficit (8.4% of GDP) reflects updated primary income data, partly offset by a stronger trade balance.

End-of-year inflation was revised upward by 1 percentage point to 10%, primarily due to further pressure from rising raw food prices, which also impacted staple foods, as well as prior depreciation effects, wage growth, and energy costs.

The forecast for real GDP growth remains unchanged at 2.5-3.5% in 2025. This is attributed to higher potential from accelerated energy facility repairs in 2024 and the commissioning of new facilities in 2025. However, these gains will be offset by the effects of a tighter labor market, contributing to higher income growth and consumption amid easing price pressures.

The IMF also revised average inflation upward from the previous report by 1.3 percentage points to 10.3%.

Meanwhile, the IMF's negative scenario anticipates a prolonged war ending in mid-2026. This scenario includes a longer and more intense shock to economic activity, budgetary needs, and the balance of payments compared to the baseline scenario, with corresponding consequences for macroeconomic policy.

The total external financing gap under the adverse scenario is estimated at $177.2 billion compared to $148 billion under the baseline scenario.

The negative scenario also predicts a decline in real GDP followed by a slow recovery, higher and more persistent inflation, a worsening current account balance (excluding grants), international reserves remaining below 100% of the ARA criterion until 2027, and a total deficit (excluding grants) exceeding 20% until 2026.

• Recently, Prime Minister Shmyhal announced that Ukraine expects to receive the next IMF tranche of $1.1 billion in late December.