Ukraine’s gross domestic product growth will slow to 3% this year from 5.3% last year, but will accelerate to 6% next year, according to the EBRD’s updated regional economic report released on Wednesday.
“Despite Ukraine’s GDP growth in 2023, supported by a record harvest, damage to electricity infrastructure from recent shelling is one of the factors likely to limit further growth in 2024,” the bank said, also highlighting the risks of damage to port infrastructure.
He noted that the forecast for Ukraine coincides with the overall forecast for 2024 for the regions in which the EBRD operates (Central and Eastern Europe, Central Asia, and the Southern and Eastern Mediterranean).
“Regional growth accelerated this year, up from 2.5% in 2023, despite challenges posed by global geopolitical tensions, including increased trade restrictions. In 2025, the EBRD regions are projected to grow further at 3.6%,” the report says.
The Bank notes that the growth of the Ukrainian economy in 2023 was driven not only by record harvests, but also by increased defense spending, which supported domestic demand, but net exports continued to decline. Among other positive factors, he pointed to the successful restoration of electricity supply after Russian shelling of civilian infrastructure last winter, as well as the resilience and adaptability of Ukrainian business.
As stated in the document, an additional stabilizing factor in 2023 was the timely receipt of external financing, which made it possible to keep inflation at the target level of about 5%. Thanks to these inflows, the country’s official international reserves increased to a record level, but the level of public debt also rose to almost 90% of GDP.
“However, in 2024, new challenges emerged, in particular, due to the prospect of a protracted war of attrition and uncertainty in obtaining external financing, which lasted for several months. Limited domestic demand, labor shortages and insufficient investment are also factors that negatively affect the growth rate,” the EBRD stated.
At the same time, it points out that a significant positive factor was the opening of a new coastal Black Sea export corridor. This has partially reduced uncertainty about the security of using the Black Sea for exports of not only grain, but also metals and mining products, which have suffered the most over the past two years.
The report also highlights a sharp increase in foreign direct investment (FDI) from Ukraine to emerging Europe in 2022 from low levels before, driven by the arrival of skilled workers from Ukraine to neighboring countries, with software and IT services driving FDI.
In general, the EBRD report, subtitled “Taming Inflation,” says that inflationary pressures in the bank’s regions of operation have eased compared to last year, which saw an economic downturn due to higher energy prices as a result of the war in Ukraine and the post-war recovery.
The report describes how geopolitical tensions are affecting the EBRD’s countries of operation, leading to rapid trade fragmentation and increased defense spending, and thus a reduction in the so-called “peace dividend” – the economic benefits of reduced defense spending and reinvestment of the resulting savings in the civilian economy. Although growth is projected to continue in the bank’s regions, the updated forecast is 0.2 percentage points (p.p.) lower than last year’s September forecast.
Due to lower energy and food prices after a sharp rise in 2022, inflation in the EBRD regions fell to an average of 6.3% in March 2024 from a peak of 17.5% in October 2022. Although this fall was faster than expected a year ago, inflation is still 2 percentage points above pre-crisis levels. This is in line with trends in developed economies, where inflation has also declined but still exceeds central bank targets. The forecast also emphasizes the slower pace of inflation decline in EBRD countries with higher budget deficits and weaker macroeconomic frameworks.
In the report, the bank improved its estimate of Russia’s GDP growth in 2024 from 1% to 2.5%, but expects it to slow to 1.5% next year.
For Poland, the forecast for this year has been improved by 0.2 percentage points to 2.9% with an acceleration to 3.5% next year, while for Turkey it has been lowered by 0.3 percentage points this year to 2.7% with an acceleration to 3% next year.
