Ukraine's Economy Experiences a 1.7% Expansion in Q2 of 2025 - Reported by IER
Ukraine's economy showed signs of resilience in the second quarter of 2025, with the real GDP growing by 1.7%. This acceleration was a marked improvement from the first quarter's 0.8% year-over-year growth.
However, the growth was not evenly distributed across sectors. Metallurgy continued to expand, and machinery production stayed flat, while agriculture, coal mining, and oil processing weakened. The manufacturing sector saw a growth of 1.4%, driven by domestic demand and defense orders.
On the flip side, the transport sector took a hit, with activity falling nearly 9% year-over-year, primarily due to lower rail shipments and the cessation of Russian gas transit. The state-owned railway company Ukrzaliznytsia reported reduced grain transport as older stockpiles from 2021-2022 were exhausted.
The energy sector also faced challenges. Natural gas storage facilities held 10 bcm as of Aug. 5, or 32.3% capacity - the lowest level in 12 years. To meet winter needs, at least 13 bcm must be stored by Nov. 1. State-owned gas giant Naftogaz is speeding up gas injection into Ukraine's underground storage facilities and is seeking alternative sources to secure winter supplies. Repeated attacks on gas infrastructure remain a significant drag on growth.
Energy trade showed a different trend, with imports of natural gas climbing 24.7% in July, led by Hungary. Electricity exports increased 16% month-on-month to 282.2 thousand MWh in July, with Moldova accounting for 41% of shipments.
Ukraine's economy shrank 1% year-over-year in July, mainly due to weaker agricultural output. The ongoing destruction of industrial facilities, infrastructure, and housing has intensified migration pressures and labor market strains.
The National Bank of Ukraine (NBU) lowered its GDP forecast to 2.1% for 2025, and the International Monetary Fund (IMF) and the German Economic Team (GET) revised their forecasts down to 2%. In the second half of 2025, the state development bank KfW adjusted its growth forecast for Ukraine, expecting slight economic growth by the end of the year. No other specific institutions updating Ukraine's growth forecasts in that period were identified in the search results.
A rapid stabilization could trigger stronger private investment and consumption, offsetting the constraints of heavy defense-driven fiscal spending. Ukraine's grain and flour exports dropped 57.7% in the opening weeks of the 2025/26 marketing year, due to a smaller harvest following the 2024 drought and the reintroduction of EU export quotas.
Sectoral trends showed oil processing falling further, while clothing and footwear output rose. Energy trade and electricity exports could potentially offset some of the losses in other sectors, but the challenges in the energy and transport sectors, coupled with the ongoing conflict, present significant obstacles to sustainable growth.
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