Dragon Capital cuts Ukraine GDP growth forecast for 2026 to 1%

Investment company Dragon Capital has revised its forecast for Ukraine’s economic growth in 2026 downward — from 1.5% to 1%.

This was reported by Interfax, citing a speech by the head of the analytical department and chief economist of the company, Olena Bilan, at an online macroeconomic forecast discussion organized by the Centre for Economic Strategy on August 5.

According to Bilan, the revision is due to a stronger-than-expected negative impact of the war’s escalation on most sectors of the economy outside the defense-industrial complex.

“We have revised our economic growth forecast for this year downward — a downgrade, as they say in English. This is because we are seeing a much greater negative impact of the war’s escalation on all sectors, on many sectors outside our defense-industrial complex,” Bilan noted.

At the end of March, Dragon Capital had, on the contrary, raised its 2026 forecast by 0.5 percentage points — to 1.5%.

The defense-industrial complex remains the main driver

Despite the overall deterioration in the outlook, the defense-industrial complex remains the sector providing a positive contribution to GDP. Dragon Capital estimates its impact at approximately 1.5 percentage points — more than in 2025. The main reason for this growth, according to Bilan, will be increased funding for the sector under the Ukraine Support Loan (USL) program with the support of the European Union. In particular, direct external financing for drone production is envisaged this year.

The rest of the economy, according to analysts, may end the year with a negative result. Among the main factors are a decline in household consumption due to heightened military risks (domestic demand had been one of the key drivers of growth in previous years), the destruction of business logistics infrastructure, and problems stemming from a possible complete shutdown of Black Sea ports (part of agricultural exports is planned to be rerouted through Danube ports), as well as anticipated energy difficulties in winter and the negative impact of new EU quotas, particularly on the metallurgical sector.

Bilan noted that household incomes may continue to grow in nominal and real terms, but the overall level of uncertainty and war-related stress will restrain economic activity.

In its baseline scenario, Dragon Capital assumes that the war will continue until 2027. Under these conditions, economic growth will remain uneven: defense industries will support GDP, while civilian sectors will continue to face pressure from risks to businesses and consumers.