Investment banking firm Capital Times (Kyiv) has revised its macro forecast for 2024-2025, worsening its expectations of economic growth by 2.0 percentage points (pp) to 3.1% and inflation by 2.6 pp. – To 9.0%.
“We assume that the cooling economy will lead to negative real GDP in Ukraine in Q4 2024g and Q1 2025. Improvement of the forecast is possible subject to the implementation of mechanisms of budgetary stimulation of the economy, which was announced by representatives of the authorities,” the company said in a press release on Wednesday.
According to it, forecasts of GDP growth and inflation for next year are also worsened by 1.3 pp. – To 2.9% and 7.0% respectively.
It is indicated that Capital Times analysts record signs of economic slowdown and attribute them to a smaller flow of external financial assistance, as well as internal mobilization processes. Among other reasons were cited problems with electricity supply, strengthening trade and budget deficits.
The nominal GDP estimate was cut by 2.2% to $188.3 billion for this year and 1.8% to $205.7 billion for next year.
The company noted that while inflation reached its lowest levels in Q2 2024, there was a sharp acceleration in consumer and industrial inflation in June due to higher electricity prices.
“In the pre-war years, businesses gradually shifted the cost of utility bills to the consumer, but in wartime, there is not enough resource for businesses to cover the additional costs. Therefore, the business immediately lays the growth of production costs in the prices,” the analysts explained.
According to the updated forecast, Capital Times worsened expectations of the average official exchange rate for this year to UAH 40.5/$1 from UAH 39/$1 in the previous forecast, and for the end of the year – to UAH 42.5/$1 from the previously forecasted UAH 41/$1. Analysts are also more pessimistic about the possible trajectory of the hryvnia in 2025: the average annual official exchange rate is forecast at 43.7 UAH/$1, and 45.2 UAH/$1 at the end of the year, while earlier they expected the average exchange rate in 2025 at 42 UAH/$1.
“The accumulation of structural problems with budget financing and decreasing financial support from partners stipulate a gradual devaluation of the Ukrainian hryvnia during 2024. The devaluation trend is very strong and we anticipate hryvnia weakness in the second half of this year,” the release said.
At the same time, analysts improved their forecast for Ukraine’s foreign exchange reserves for this year from $38 bln to $41.5 bln, worsening it for next year from $42 bln to $40 bln.
A positive aspect of the updated macro forecast is the gradual narrowing of the negative trade balance from $37.7bn last year to $36.8bn this year and $35.4bn next year.
Analysts believe that agreement on a plan to restructure external debt, agreements with European partners on the Ukraine Facility program, implementation of the Extraordinary Revenue Acceleration Loans mechanism of providing Ukraine with $50bn, secured by future revenues from frozen Russian assets, and full IMF support are factors that will reduce Ukraine’s dependence on US aid in the coming years, offsetting the risks of the US election results.
“No significant changes on the front, despite a palpable excess of enemy forces. In the second half of the year, we assume more positive news for Ukraine, including progress in the liberation of territories. However, we see 2027-2028 as the base scenario for the end of the war,” Capital Times summarized.
Capital Times, GDP, Ukraine
