The National Bank of Ukraine (NBU) published its October Inflation Report, forecasting higher inflation and an economic contraction in 2026 as intensified Russian attacks damage infrastructure and raise business costs. Inflation is projected to reach 12.5% in 2026 before declining to 7.3% in 2027 and the 5% target in 2028. Real gross domestic product (GDP) is expected to contract by 0.4% in 2026, followed by growth of 0.4% in 2027 and 2.2% in 2028. Higher fuel prices, damage to production and logistics infrastructure, and increased fiscal stimulus toward the end of 2026 will add to price pressures. Inflation should subsequently ease as fuel price effects fade and wage growth slows amid subdued activity. Between July and October 2026, the NBU raised its key policy rate from 15% to 16.5%. Monetary conditions will need to remain sufficiently tight to contain inflation and exchange rate expectations, while policy decisions will also account for weaker activity and domestic demand. Economic recovery will remain constrained by infrastructure losses, with public investment supporting growth in 2027 and stronger consumption, harvests and private investment contributing in 2028. International assistance is expected to finance the budget deficit without monetary financing. The deficit, excluding grants from revenues, is projected at around 35% of GDP in 2026 and 37% in 2027, before narrowing to 20% in 2028. Direct budget support is forecast at around USD 50 billion, more than USD 52 billion and USD 44 billion, respectively. The outlook assumes Ukraine fulfills its commitments under international cooperation programs and receives sufficient financing. It also depends on logistics improving from mid-2027 and security risks gradually declining toward the end of the forecast horizon. Further damage from Russian attacks remains a major risk.

Original source