The National Bank of Ukraine has estimated Ukraine’s real gross domestic product (GDP) growth in the first quarter of 2024 by the same period last year at 3.1%, while in January it forecast it at 7.1%.
“Real GDP growth in the first quarter of 2024, according to NBU estimates, was weaker than expected, primarily due to restrained budget expenditures amid uncertainty about the receipt of external financing. An additional factor was the blockade of the western border, which restrained the activity of certain types of activities,” the National Bank explained in the Inflation Report published on its website.
At the same time, as the NBU pointed out, stable operation of the sea corridor, favorable weather and increased domestic demand supported economic growth. The central bank added that fiscal policy remained accommodative and, together with the effect of a significant increase in fiscal spending at the end of 2023, significantly fueled aggregate demand.
Earlier, in late April, the Economy Ministry estimated Ukraine’s GDP growth at 4.5% in the first quarter of this year.
As the National Bank notes, moderate GDP growth rates will remain until the end of 2024. “The main factors of growth will remain the preservation of soft fiscal policy, revitalization of external demand, as well as further adjustment of business and population to the conditions of significant security threats. However, the pace of economic growth will slow given the impact of the war and the depletion of growth momentum from the low base of 2022,” the NBI pointed out.
It added that the recovery will also be constrained by the impact of the destruction of energy infrastructure.
According to the updated forecasts, GDP growth will accelerate to 3.7% in the second quarter (the NBU expected it at 4.8% in January) before slowing to 1.3% (1.7%) in the third quarter and accelerating again to 4.1% (2.0%) in the fourth quarter.
Overall, for 2024, the NBU worsened its growth forecast for the Ukrainian economy to 3% from 3.6% in its January report, and for 2025 to 5.3% from 5.8%.
“The negative contribution of revised estimates of the e/e deficit to the change in real GDP in 2024 is estimated at 0.6 percentage points (pp), and 0.5 pp in 2025. Instead, the impact on GDP of a smaller grain harvest in 2024 will be insignificant due to the reorientation of agricultural producers to more marginal crops, particularly oilseeds,” the central bank said.
According to the regulator, the balance of risks of the baseline forecast is shifted towards deterioration of Ukraine’s economic growth rates and increased price pressure.
The National Bank in the updated Inflation Report increased the number of key risks of the forecast (with a strong impact and probability of 25-50%) to three: to the risk of a longer period and intensity of the war added the risk of large budgetary needs (a quarter earlier the NBU estimated its probability at 15-25%) and large damage to energy and port infrastructure (a quarter earlier the impact of this risk the central bank considered moderate).
At the same time, the probability of the risk of reduction of volumes and loss of rhythm of international aid receipts and continuation of partial blocking of cargo traffic across the border by some EU countries was reduced from 25-50% to 15-25%, but the degree of impact of the latter risk was increased from weak to moderate.
In addition, the NBU added a new risk – aggravation of the situation in the Red Sea, but estimated its probability at 15-25% and the degree of influence as low, as well as excluded the risk of increasing the capacity of maritime export routes, which is positive for the forecast.
Earlier Experts Club analytical center and Maxim Urakin released a video analysis of how the GDP of the world’s countries has changed in recent years, more detailed video analysis is available here – https://youtu.be/w5fF_GYyrIc?si=BsZmIUERHSBJrO_3 Subscribe to Experts Club YouTube channel here – https://www.youtube.com/@ExpertsClub.
EXPERTS CLUB, GDP, MACROECONOMICS, NATIONAL BANK, UKRAINE, URAKIN
