Industry, construction and business confidence — already in negative territory
The performance of the Ukrainian economy began to deteriorate right from the start of the year: in the first quarter, amid winter power cuts and construction halts due to unusually cold weather, the economy contracted by 0.6% year-on-year. In the second quarter, Ukraine’s real GDP grew by 0.6% year-on-year, although macroeconomic conditions remained challenging: due to the escalation of the situation in the Persian Gulf, prices for gas and petroleum products rose significantly in Ukraine from March onwards, whilst the impact of the CBAM led to substantial losses in the metallurgical sector.
Against this backdrop, key sectors of the Ukrainian economy are already in the red: in the first half of the year, industrial production fell by 0.2% year-on-year, whilst construction fell by as much as 8.1% year-on-year.
Further factors contributing to the negative trend emerged in the summer: the suspension of maritime exports due to shelling of port infrastructure in the Black Sea and the widespread destruction of warehousing and industrial facilities during August and September.
The steel sector (MMS) was particularly hard hit. In July, several mining and processing plants (MPPs) were forced to shut down due to the inability to export iron ore, whilst in August and September, almost all of the largest steel enterprises ceased operations either completely or partially due to damage caused by missile strikes. Moreover, even before the shelling began, on 1 July, the EU introduced a new quota system which significantly restricted access for Ukrainian steel products to the European market.
There are as yet no reliable macroeconomic statistics for this period, but the business sector has already reacted by revising its expectations downwards: in August, the business activity expectations index stood at 48.3, compared with 50.1 in July and 52.1 in May. A reading below 50 indicates that negative assessments predominate. The reasons for the deterioration are clear: losses from widespread destruction, the blockage of seaports, high fuel prices and a shortage of skilled labour.
Against the backdrop of widespread destruction of production facilities, warehouses and logistics infrastructure, Ukrainian businesses are unable to maintain economic activity at the level seen in spring 2026, at the very least. There are no sources to cover losses running into the billions; Western funding has dried up; and bank loans remain very expensive. Under these conditions, businesses are scaling back their economic activity and postponing investment plans, which is already having an impact on the state of public finances. In August, there was a significant drop in tax revenues to the budget, prompting the government to decide to defer the majority of non-essential expenditure until December.
The Ministry of Finance openly acknowledges that the current budgetary situation in Ukraine is the worst it has been since 2022. The shortfall in funding for the defence section of this year’s budget stands at $27 billion, whilst Ukraine’s external financing deficit for next year is $32.6 billion.
Despite the relatively positive current forecasts for GDP (National Bank of Ukraine: +1.8% in 2026), it is no longer realistic to expect the Ukrainian economy to grow this year. The issue is not the fact that Ukraine’s GDP will contract, but the extent of the decline.