NBU links GDP decline in Q1 to electricity shortage due to infrastructure destruction

The National Bank links GDP decline in Q1 to electricity shortage due to infrastructure destruction.

This is stated in the NBU report, Ukrainian News Agency reports.

In Q1 2026, real GDP decreased by 0.6% in annual terms (y/y), and compared to the previous quarter, by 0.7% in seasonally adjusted terms.

This dynamics was due to electricity shortage due to infrastructure destruction due to large-scale russian attacks, low budget expenditures against the backdrop of delays in external financing, as well as abnormally cold weather. The economy suffered the greatest losses in the first half of the quarter, while later the situation in the power system gradually improved due to warmer weather and partial restoration of capacity.

The actual growth rate of real GDP turned out to be slightly lower than the preliminary estimate of the State Social Insurance Service of Ukraine, taken into account in the National Bank's Inflation Report for April 2026 (-0.5% y/y).

The growth in physical import volumes accelerated to 15.6% y/y amid further expansion of demand for individual mechanical engineering products, customs clearance of natural gas, active import of energy equipment, and increased purchases of petroleum products against the backdrop of an energy deficit. In addition, imports of agricultural machinery and intermediate consumption goods increased in preparation for the spring sowing campaign.

The growth in physical export volumes resumed (1% y/y) primarily due to increased exports of corn and oil, but its pace significantly lagged behind the growth in imports. As a result, the negative contribution of net exports to the change in real GDP expanded compared to the previous quarter to 8 percentage points (p.p.).

Significant electricity shortages and regular russian attacks on Ukrainian infrastructure slowed production activity in a number of sectors. Despite a gradual improvement in the situation at the end of the quarter, the gross value added (GVA) of the energy sector decreased by 15.2% y/y. Continuous attacks on logistics infrastructure led to a further decline in the transport sector (by 9.4%). In addition, against the backdrop of reduced budget funding, power outages and a further increase in production costs, there was a decline in construction (by 4.5%). At the same time, the processing industry continued to grow (by 1.9% y/y), despite the difficult security and energy situation. This was facilitated by active processing of oilseeds, increased production of defense products, metal products for construction and energy equipment. The GVA of the extractive industry also increased (by 2% y/y) due to the restoration of production capacities and the effect of the low comparison base last year, when large-scale destruction of Ukraine's gas production infrastructure by russia took place.

According to the NBU, the economy will return to growth as early as the second quarter of 2026, but the pace of recovery will be moderate due to the consequences of russian aggression and war in the Middle East.

Economic growth will be supported by stable consumer demand, further investments in the defense complex and gradual restoration of production capacities. At the same time, the economic recovery will be more moderate than last year due to high business costs for energy supply, the persistence of electricity deficits and smaller fiscal incentives.

As Ukrainian News Agency earlier reported, the State Statistics Service has worsened the estimate of the GDP decline in January-March 2026 from 0.5% to 0.6%.

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