Ukraine's economy defies war but faces slower growth ahead in 2026
"Kyiv Awaits You After the War"—the words blaze in white on a blue billboard, an invitation to tourists outside St. Sophia's Cathedral in Ukraine's capital, the green-and-white cradle of Christianity in the region since the early 11th century. But the images shared online by emergency services after an attack on the Philip Morris cigarette factory in Kharkiv—Ukraine's second-largest city—paint a starkly different picture: twisted metal, collapsed steel beams, and raging fires amid the rubble. A nation torn between hope and despair, yet one that, as an economist tells Die Presse, "could still become Europe's next 'tiger economy.'" More on that later.
According to the American Chamber of Commerce in Kyiv, 47 percent of U.S. companies registered in Ukraine have already been attacked at least once—including not only the Marlboro factory but also facilities belonging to electronics manufacturer Flex and agribusiness giant Bunge.
Ukrainian energy firms have suffered even worse. Since Russia resumed its targeted strikes on thermal and hydroelectric plants, substations, transformers, gas pipelines, and power grids, private utility DTEK has lost roughly 70 percent of its generation capacity. The painstaking work of restoration continues.
The National Bank of Ukraine (NBU) forecasts that power shortages will slow economic growth by 0.5 to 3 percent in 2026. The International Monetary Fund has already downgraded its GDP growth projection for that year—to just 1.8 percent. Prime Minister Yulia Svyrydenko reports that in January alone, tax revenues fell short by 12 billion hryvnias (€230 million).
These are "colossal losses," Economy Minister Oleksiy Sobolev tells Die Presse. Beyond the human suffering, he explains, "every billion kilowatt-hours not produced due to these attacks costs Ukraine about 0.15 percentage points of GDP." Yet his defiance is clear: "We will rebuild everything—with strong support from our partners. Our economy is incredibly resilient."
Sobolev is not alone in his optimism. The fact that Ukraine has withstood Russia's invasion—a far larger and better-armed adversary—and avoided economic collapse is largely due to reforms launched after the annexation of Crimea in 2014, says economist Elina Ribakova. The lettish-born expert, now vice president for foreign policy at the Kyiv School of Economics (KSE), highlights "significant improvements in macroeconomic management and deeper integration with the West" as key factors.
"War is not just about military aggression," Ribakova explains. "It's also about a country's ability to absorb massive macroeconomic shocks: destroyed infrastructure, collapsed exports, lost revenue, population displacement, labor market disruptions, dwindling foreign investment, and extreme uncertainty." She credits the NBU with keeping banks operational, curbing inflation, and stabilizing the hryvnia. Thanks to support from its allies, she notes, "Ukraine has held its ground for nearly four years against a nuclear-armed opponent with superior manpower and greater financial resources."
Ukraine's economy grew by 2.2 percent last year despite the war, while Russia's expanded by just 0.7 percent, Minister Sobolev proudly announced. As Russian industry reels from what Moscow's ministries describe in increasingly dire reports—now mired in recession—Ukraine's economy is still projected to grow by another two percent this year, even amid ongoing blackouts, Sobolev said. "This is also an economic war. We must outperform Russia economically."
Lesia Karnaukh, head of Ukraine's tax authority, expressed gratitude to taxpayers: "Despite the war, the constant bombardments, the instability, and the lack of light and heat, you have filled the state budget. Every hryvnia paid in taxes is a contribution to Ukraine's victory."
Yet the relentless destruction of energy and transport infrastructure is taking an ever-heavier toll on Ukraine. "Prolonged disruptions from attacks on power facilities could lead to production losses equivalent to two to three percent of GDP," warns the latest forecast from the Kyiv School of Economics (KSE). Western financial aid, however, has provided "significant compensation," allowing the 2026 growth forecast to be revised upward to 3.2 percent.
Still, major questions remain. The war is consuming 43 percent of Ukraine's GDP in state spending, according to KSE estimates. The budget deficit is soaring and can only be covered by massive Western financial injections, driving public debt to record highs. The trade deficit is also growing faster than expected.
"We don't have a trade deficit because our economy is performing poorly—we have it because Russian attacks force us to import electricity instead of exporting it, and because we now have to import far more natural gas," Sobolev explained. "On top of that, we must import military goods. These two factors are the main drivers of the trade imbalance, and they are financed by foreign support. That's what keeps our macrofinancial situation stable."
It remains unclear whether blast furnaces and glassworks will survive the power shortages and cold snap or be permanently crippled by blackouts. The coal and metals sectors still account for 7.2 percent of GDP and roughly 15 percent of exports. Smaller businesses are resorting to diesel generators, but their electricity costs have skyrocketed to five times pre-war levels.
Stricter EU quotas on Ukrainian grain and vegetable oil exports, along with attacks on ports, are further straining trade. Sobolev, however, envisions "EU plus Ukraine" becoming the world's leading food exporter. "This would be a major economic and geopolitical strength—a critical security asset." His "perfect plan"? "European companies invest in Ukraine, process agricultural raw materials here, and together we export to Asia and Africa." He also sees significant potential for cooperation in expanding biogas production for European markets. Currently, 56 percent of Ukraine's exports are agricultural products worth $22.6 billion (2025 figures), with 47 percent bound for the EU.
The real growth engine now is the defense industry, which accounts for the largest share of GDP. Yuri Lomikovskyi, co-founder of the IRON Lviv Tech Cluster—a hub for Ukrainian and international arms manufacturers—explained in an interview in the western city of Lviv that production of combat, intercept, and jamming drones is booming. Once a state-dominated sector, "now 800 to 1,000 private producers lead the way," he said. "Today, we support each other's production, which helps localize manufacturing and reduce dependence on Chinese components." What's urgently needed, however, are foreign investments in these young firms and deeper international cooperation.
Minister Sobolev shares this view and is seeking foreign buyers for major state-owned enterprises, including the gas giant Naftogaz, a fertilizer producer, and two banks. Domestic investors simply lack the capital for such large-scale investments. "But when we tried to sell a major ammonia plant, potential buyers asked: 'Where's the guarantee that Russia won't destroy the facility after we've invested $100 million?'" Sobolev recounts. "We're talking about gas, ammonia production—highly sensitive infrastructure. Unfortunately, we can't provide that guarantee."
"Ukraine could become a new European 'tiger economy.'"
Guarantees are in short supply in this war-torn country, but hope for an end to the conflict remains. Once peace arrives, says Dimitar Bogov, lead economist for Ukraine and Moldova at the European Bank for Reconstruction and Development (EBRD), "we firmly believe Ukraine can emerge as a new European 'tiger economy' during reconstruction"—much like the Asian boom states with their legendary growth rates. Bogov argues that Ukraine already has the foundational strengths needed: defense capabilities, digital innovation, and traditionally robust sectors like agriculture. "But this can only succeed if reconstruction is paired with sweeping reforms, strong security guarantees, and a surge in private investment."
For now, Ukraine's survival rests on "the resilience of the Ukrainian people, which has kept the economy growing in real time," Bogov explains. Meanwhile, dreams of tourists returning to Kyiv persist.
