Ukraine's foreign reserves jumped back above $51bn in June after more than $15bn in delayed Western financing finally landed, ending four months of steady decline.

The rebound papers over a widening hole in the country's external accounts. The cumulative goods trade deficit reached $25.8bn in the first five months of the year, 48% wider than a year earlier, as imports of machinery and fuel outpaced a barely-growing export base.

“With the long-flagged inflows finally landing, near-term financing stress has eased, but the further ERA and USL tranches, and a July government reshuffle leave stability contingent on timely, reform-conditional support,” KSE Institute said in its monthly economic update.

Imports outrun a shrinking export base

Goods exports reached $16.6bn over January-May, up just 3% y/y, with the gain confined to agricultural products (+10%) while minerals, machinery, metals and chemicals all fell, a sign of Ukraine's eroded export capacity. Imports climbed 27% to $42.4bn, rising in every category; machinery and equipment led (+40%), driven by defence, capital investment and reconstruction demand, followed by mineral products (+53%). The wider current-account deficit hit $18.1bn, 40% larger than a year earlier.

The gap is structural. Imports now run at more than twice the value of exports, KSE Institute warned last autumn, meaning shipments abroad must grow at twice the pace of imports simply to hold the deficit steady. Russia's intensified strikes on Odesa, Chornomorsk and Izmail ports have knocked out about 30% of Black Sea port export capacity, the institute said, while the mid-2025 collapse of the EU's wartime duty-free regime has cut Ukrainian grain flows to the bloc by roughly 30%.

Reserves rebuild, hryvnia holds near 45

Reserves had slid to $45.7bn by the end of May as official disbursements dried up and the NBU bridged the gap with interventions. June reversed that: more than $15bn in official inflows, including $11.3bn from partners, lifted reserves 12.1% to $51.3bn and restored import cover to 5.2 months. Much of the money came through the EU's Ukraine Facility and World Bank projects.

The hryvnia averaged UAH44.7 to the dollar in June, up 1.5% on the month, after spiking towards 45.1 between June 8 and 11 on accelerated defence spending. Steadying it took record NBU foreign-currency sales of $5.1bn, the largest since December 2024, lifting the bank's share of interbank turnover to as much as 64% in mid-June. The central bank has repeatedly leaned on its reserves to defend the currency; by early July the pressure had eased and the rate slipped back to around 44.5.

“The episode reinforces our reading of the framework: the NBU tolerates sizeable ER adjustments under genuine market pressure while decisively smoothing spikes that could trigger panic,” KSE Institute said, describing a “crawl-like drift” in place since late 2025. Analysts now see the hryvnia at 46.2 to the dollar in a year, up from 45.8 in April.

Inflation eases but the core creeps up

Headline inflation slowed for a second month to 7.2% y/y in June, down from 8.2% in May and 8.6% in April, on cheaper food: eggs fell 19.4% y/y, vegetables 12.8% and sugar 11.2%, as better harvests and a weak 2025 base fed through. But core inflation edged up 0.2pp to 8.1%, and manufacturing producer prices accelerated to 45.2%, pointing to cost pressure still working through the system.

“The slowing of headline inflation in June should be interpreted with caution, as the decline was mainly concentrated in the food categories,” KSE Institute said, warning that headline inflation risks turning back towards 10% once seasonal food relief fades and administered utility tariffs rise. The NBU had already cut its 2026 growth forecast to 1.3% and flagged inflation peaking near 9.4% by year-end.

Central bank keeps its hawkish tilt

The NBU left its key policy rate at 15% for a third meeting in June, judging conditions tight enough to support demand for hryvnia savings and contain FX pressure. The hold masked a hardening in tone: three of the 11 members of the monetary policy committee voted to raise the rate to 15.5%, the first push for tightening in 2026, citing above-forecast inflation.

KSE Institute expects the NBU to lift its April inflation projection in the July round and to prioritise “durable disinflation and anchored expectations over monetary easing,” with the case for a stabilising hike to 15.5-16% building towards the fourth quarter.

A two-speed real economy

Real activity stayed subdued. Industrial output was flat in May, up just 0.3% y/y, splitting sharply between defence and civilian lines: production of computers and electronics jumped 77.9% and machinery 32.7% on drone and missile demand, while motor vehicles fell 9.4%, electrical equipment 26.8% and clothing 39.2%. Construction slumped 17.8%, with every segment shrinking, and the energy sector contracted 11.5% under accumulated war damage. Retail trade was the exception, up 10.9% on resilient consumer demand and wage growth; the average nominal wage reached UAH30,961 ($702) in May.

Beneath the monthly readings the economy is barely growing. KSE Institute's data put real GDP at -0.6% y/y in the first quarter, a contraction, and the structural labour shortage that the institute calls a “skill famine” remains a drag even as a summer pull into agriculture masks it. A phased demobilisation planned from late 2026 could return prime-age men to the workforce.

Politics clouds the outlook

The near-term relief is hostage to politics. Parliament dismissed Prime Minister Yulia Svyrydenko in mid-July and approved former Naftogaz chief Serhii Koretskyi in her place on July 16, a reshuffle that also removed reformist Defence Minister Mykhailo Fedorov and drew street protests. The IMF completed the first review of its four-year programme on July 20, releasing about $0.7bn and lifting cumulative disbursements to $2.2bn, though two structural benchmarks slipped and one was missed.

For now the buffers are rebuilt and the hryvnia is steady. But with the trade gap still widening and reform conditionality back in focus, Ukraine's macro stability rests, as it has throughout the war, on the next tranche arriving on time.