Ukraine: Economy slips into contraction in the first quarter of 2026
Q1 growth weakest in three years: Ukraine’s GDP contracted 0.6% in annual terms in Q1, following a 2.8% expansion in the prior quarter. Q1’s reading was the weakest since Q1 2023.
On a seasonally adjusted quarter-on-quarter basis, the economy contracted 0.7% in Q1, following a 0.7% expansion in the previous quarter.
Power shortages drive downturn: Relative to the previous quarter’s data, figures for Q1 worsened for private consumption (+11.0% on a year-on-year basis vs +11.1% in Q4), government consumption (-1.6% vs +0.3% in Q4) and fixed investment (-7.9% vs +7.6% in Q4). In contrast, readings picked up for exports of goods and services (+1.0% vs -1.3% in Q4) and imports of goods and services (+15.6% vs +11.6% in Q4).
The downturn was led by power shortages, as infrastructure suffered significant damage from Russian strikes, a lack of expenditure amid delays in external financing and abnormally cold weather.
Net exports weighed on the economy, as imports surged due to strong demand for energy and investment goods—including gas clearance, energy equipment and petroleum purchases, as well as farm machinery and intermediate goods ahead of spring sowing—while export growth remained modest. Meanwhile, public consumption declined, as tighter fiscal policy led to lower government spending, while fixed investment also fell sharply, reflecting reduced capital spending, limited fiscal resources and adverse weather conditions that constrained investment activity. Still, private spending growth remained robust amid strong wage growth in both the public and private sectors.
GDP to rebound in Q2: The economy is seen returning to growth in the second quarter of 2026, before gradually accelerating through Q1 2027. GDP growth will be supported by strong private spending amid strong wage growth, ongoing investment in the defense sector and a gradual recovery in production capacity. However, the pace of the recovery will be modest due to high energy and supply costs, persistent power shortages and weaker fiscal support.
In 2026 as a whole, GDP growth is seen hovering close to 2025’s print.
Panelist insight: On the 2026 outlook, analysts at EIU commented:
“Growth will remain driven by private consumption and fixed investment, both of which should remain robust in spite of headwinds. Fixed investment will be supported by capital expenditure in the defence sector, reconstruction of energy infrastructure and rebuilding of war damage. It will be largely underwritten by external funding and companies drawing down on existing liquidity, making it resilient to higher domestic interest rates. Private consumption will weaken somewhat […], but will remain supported by strong wage rises due to fundamentally tight labour markets. There may also be a jump in consumption in the second quarter as consumers bring forward purchases as inflation expectations increase, followed by a cooling in the second part of the year.”