Ukraine’s Real GDP Grew 1.1% in Q1 2025 – IER (2025)

Ukraine’s real GDP grew by 1.1% in the first quarter of 2025, according to the Institute for Economic Research and Policy Consulting (IER).

The growth was lower in winter this year – 1.2% in January and 0.7% in February, but accelerated in March when the monthly real GDP increased to 1.3%, thanks to better access to electricity and a gradual demand recovery.

The IER was created as an independent economic research think tank in 1999, when Ukraine lacked independent economic research to create policy and advise the government.

Industry and trade grew in the first quarter: IER reported a 2.5% growth in industry in March, following a 1.8% increase in February. The reason is moderate growth in domestic demand and exports despite Russian attacks on Dnipro, Kryvyi Rih and Kharkiv.

The share of direct sales is increasing, which reduces the volume of wholesale trade, allowing trade to grow from 0.7% in February to 1.2% in March 2025.

However, Russia’s attacks on energy infrastructure and a Moscow-backed cyberattack on Ukraine’s State Railways Company, Ukrzaliznytsia (UZ), caused a contraction in growth.

In March, hackers targeted Ukrzaliznytsia, blocking online train ticket purchases and cargo shipment documentation nationwide.

Oleksandr Shevcheko, the deputy director of UZ’s communications and passenger services, called the incident a “record-breaking cyberattack.”

Although Shevchenko assured that all trains were running as scheduled, IER wrote that railway freight transportation slowed down after the cyberattacks. Shevchenko told Kyiv Post that UZ believes Russian hackers were behind the cyberattack.

Together with the Russian gas transit halt through Ukrainian pipelines, Moscow’s attacks on energy infrastructure and the railroad cyberattack were the main contributors to a 6% decline in March and February, IER reported.

Russian strikes on energy infrastructure caused a decrease of almost 5% in GDP growth.

Russian attacks on gas production, as well as Russian occupation of Ukraine’s coal mine in the Donetsk region, also impacted the mining sector, altogether contributing to a more than 3% decline in real GDP growth in the first quarter.

In January this year, Ukraine’s largest steelmaker, Metinvest Group, officially announced the suspension of operations at the Pokrovske Coal Mine due to fighting in the region.

The Pokrovske mine plays a key role in Ukraine’s steel production – 65% of Ukrainian steel in the industry was produced using coal from Pokrovsk, Oleksandr Parashchiy, the head of research at Kyiv-based Concorde Capital investment bank, told Kyiv Post.

Decreased livestock production and Russian military advances also caused a 3% contraction in agriculture in March, IER estimated.

With all of these factors taken into account as a whole, IER estimated Ukraine’s GDP growth to be 1.1% in the first quarter of 2025 – a slower growth compared to the 6.5% growth in the first quarter of the previous year.

Previously, Ukraine’s central bank, the National Bank of Ukraine (NBU), decreased its forecast for Ukraine’s GDP growth in 2025 by 3.1%.

In January, the NBU forecasted that real GDP would grow by 3.6%, according to its January 2025 Inflation Report.

The pessimism is caused by both the looming trade wars and the increased destruction of gas infrastructure from Russia’s strikes at the beginning of 2025.

“Economic growth remained subdued in the first quarter of 2025, in particular due to the destruction of gas infrastructure and the resulting increase in gas import needs. Despite some recovery in the labor market, the war-induced shortage of skilled workers also remained a significant constraint, according to business surveys,” the NBU wrote in a press release after the monetary committee briefing.

But there is another reason – Ukraine’s economy reached its peak potential and cannot physically produce more now.

Previously, IER’s Chief Executive Oksana Kuziakiv told Kyiv Post in an interview that she does not believe in miracles for Ukraine’s economy in 2025.

She and her colleagues at the IER observed that Ukraine’s economy is now working at its maximum capacity and cannot physically deliver a higher real GDP increase.