IMF revises Ukraine war duration forecast

The International Monetary Fund (IMF) has revised its forecast for the duration of the war between Russia and Ukraine, indicating that intense hostilities are now expected to last until the last quarter of 2025. 

This timeline reflects a one-year delay from earlier projections, which had anticipated the conflict winding down in late 2024. The updated baseline scenario suggests that while the war will exert significant pressure on Ukraine's economy, the country will still manage to achieve measured growth, Caliber.Az reports, citing Ukrainian media.

The IMF's memorandum highlights that the ongoing war will particularly affect areas already facing reduced economic activity due to security concerns. Although growth is expected to remain positive, a prolonged conflict could negatively impact economic indicators through increased uncertainty, labor shortages, and pressures on imports related to defense and repairs.

For 2024, the IMF projects a real GDP growth rate of 3%, with a likely moderation in growth during the third quarter. This slowdown is attributed to the effects of early harvests and resilient exports offsetting the adverse impact of energy shortages. However, a further economic deceleration is anticipated in the fourth quarter due to rising energy deficits, driven by increased demand during the heating season. The IMF estimates a winter energy deficit of 3-4 GW, consistent with other stakeholders' assessments, while noting that negative risks persist due to missile attacks and seasonal factors.

Inflation is forecasted to rise to 9% year-on-year by December, largely influenced by surging producer prices and labour costs. In the external sector, higher energy and defense product import needs, combined with a weaker harvest, are expected to push the current account deficit to $14.9 billion, or 8.1% of GDP. However, significant external financing is anticipated to boost gross international reserves to $42.6 billion.

Looking ahead to 2025, real GDP recovery is projected to be slower, with growth expected between 2.5% and 3.5%, reflecting a decrease of 2-3 percentage points compared to previous forecasts. Inflation is predicted to ease to 7.5% by the end of the year. The current account deficit is anticipated to widen to $27.1 billion, or 14.3% of GDP, due to persistent import needs and the impact of labor shortages on export production.

Despite the deterioration of the current account, gross reserves are expected to increase to $44.9 billion, supported by external financing. The IMF notes that the post-war recovery will be hindered by the lasting scars of a prolonged conflict, although the medium-term outlook remains positive, driven by a strong reform agenda, pathways to EU accession, and partial reconstruction efforts.

The updated baseline forecast anticipates a cumulative loss of real GDP of 2% by 2027, and 2.7% by 2033, compared to earlier projections. Nevertheless, potential growth is expected to remain broadly unchanged, as investment flows and productivity gains from reforms and reconstruction efforts are likely to outweigh the adverse impacts of the longer war on the capital stock and labor force. A recent survey by the Razumkov Center reveals that 83% of respondents in Ukraine believe in the country's eventual victory over Russia, with varying estimates on the timeline for this outcome.

By Khagan Isayev