Dragon Capital investment company, taking into account the increase in exports of raw materials through the sea corridor, a stable energy situation and a good harvest, improved its forecast for economic growth in 2023 from 4.5% to 5.2%, but kept it at 4% for 2024, the company said in a press release on Friday.
“Our updated estimate is that real GDP will grow 5.0% year-over-year in the fourth quarter of 2023, from the 3.0% we previously estimated,” the company said in a statement.
Its analysts estimate that Ukraine exported about 4 million tonnes of commodities through the new sea corridor in November, from 2 million tonnes in October. At the same time, agricultural goods accounted for about 60-70%, and the remaining share was occupied by the export of iron ore and steel. This dynamics contributes to the revitalization of related sectors, in particular freight transportation and trade, contributes to the recovery of ore production and metallurgy products, and also improves the financial indicators of agricultural enterprises, reducing risks to the harvest in 2024.
Dragon Capital, taking into account the latest data on yields of major agricultural crops, has improved its expectations for the harvest of grains and oilseeds this year from 77 million tonnes to 80 million tonnes (11% more year-over-year).
At the same time, the investment company said that an unexpected and unfavorable event was the blockade of the main crossing points of the Ukrainian-Polish border by Polish truckers in early November, which will have a limited adverse impact on economic activity.
Among the downsides of the blockade of the Ukrainian-Polish border are a decrease in state budget receipts, losses for manufacturers oriented towards the EU market, mainly in the food industry, woodworking and production of automotive electronics, a shortage of certain energy materials such as LPG, a delay in volunteer assistance for the front and financial losses of enterprises due to queues.
At the same time, Dragon Capital said, since the import of goods from the EU to Ukraine by road exceeds exports by $1.1 billion per month, the blockade leads to a reduction in the foreign trade deficit, which in recent months has fluctuated in the range of $2.8-3.0 billion per month.
“Due to the reduction in imports, some Ukrainian manufacturers of consumer goods are gaining a temporary competitive advantage,” the company added.
Speaking about the 4% forecast for economic growth next year, Dragon Capital named the partial restoration of exports by seaports as one of its key drivers and, accordingly, an increase in production in related sectors (ore mining, metallurgy, freight transportation, domestic trade). “The development of the domestic defense industry would also contribute to the economy,” the company said.
At the same time, the investment company said that economic recovery in 2023-2024 will not compensate for the 29% decline in 2022 caused by the consequences of the full-scale Russian invasion of Ukraine, and real GDP in 2024 will remain 22% below its pre-war level.
“At the same time, nominal GDP in U.S. dollars could reach its pre-war level of $200 billion as early as next year due to relative exchange rate stability and high average annual inflation,” Dragon Capital said in the press release.
The company maintained its inflation forecast for this and next years at 6% and 8%, respectively, with the National Bank’s key policy rate unchanged at 15% after its expected reduction from 16% at the next meeting on December 14.
Dragon Capital also noted the importance of financial assistance from partners, pointing out that if there is a shortage, the government will have to turn to monetization of the budget deficit, which will decrease next year from 25% of GDP to 21% of GDP, or to increase the tax burden.
“We expect international partners to approve new economic support packages for Ukraine and provide about $40 billion in direct budget funding in 2024, although a delay in the release of funds is possible early next year,” the company said.
The company’s analysts expect that, subject to such external revenues, the National Bank’s gold and foreign exchange reserves will begin to gradually grow and reach $45 billion by the end of the year.
Dragon Capital kept its exchange rate expectations unchanged – UAH 37.30/$1 on average for 2024 and UAH 39.00/$1 at the end of the year.
