The National Bank of Ukraine (NBU) has revised its 2021 inflation forecast from 8% (in its April forecast) to 9.6%, and expects that inflation will return to 5% in H2 2022.
“With global prices surging and demand recovering further, the NBU has revised its 2021 inflation forecast from 8% to 9.6%. After peaking in the fall of this year, inflation will begin to slow as the new harvest arrives and global energy prices adjust… inflation in H2 2022 will decline to its 5% target and remain there going forward,” the NBU said on its website on Thursday.
Inflation will soon rise to slightly above 10%, but it will weaken at the end of 2021 and return to its 5% ± 1 pp target range in H2 2022.
The rise in inflationary pressure, including its fundamental component, is also driven by the dynamic recovery of the economy, as evidenced by monthly and other high-frequency indicators. By tightening its monetary policy, in particular through raising its key policy rate and rolling back its emergency monetary measures, the NBU will also keep inflation expectations under control and gradually reduce underlying inflationary pressures.
The U.S. Department of Agriculture (USDA) in its July report has improved the forecast for the production and export of Ukrainian wheat in the 2021/2022 marketing year (MY, July-June) by 500,000 tonnes compared to the forecast in June, to 30 million tonnes and 21 million tonnes, respectively.
In July, the USDA kept its forecast for corn exports from Ukraine in the 2021/2022 MY at 30.5 million tonnes, harvest – at 37.5 million tonnes.
The U.S. Department of Agriculture also predicts an increase in world grain trade in the 2021/2022 MY by 800,000 tonnes to a record 204 million tonnes due to increased exports from the EU, Ukraine and Australia, while Canada, Kazakhstan and the United States will reduce exports of this crop.
The European Bank for Reconstruction and Development (EBRD) has improved its forecast for the economic growth in Ukraine in 2021 from 3% to 3.5%, according to its June forecast.
GDP is expected to grow by 3.5% in both 2021 and 2022, the EBRD said in its June regional economic prospects.
According to the report, the main risks are associated with the slow progress of reforms in the country and the relatively slow pace of vaccination, the bank’s analysts say.
Although the economy contracted 2% year-on-year in the first quarter of 2021 due to prolonged quarantine restrictions, there are indications that it is gradually returning to growth in the second quarter thanks to higher commodity prices, the EBRD said.
The U.S. Department of Agriculture (USDA) in its June report has improved the projections for the export of Ukrainian sunflower oil in 2021/22 marketing year (September-August) by 1.02 million tonnes (a rise of 18.9% compared to 2020/21), to 6.4 million tonnes, its production – by 1.05 million tonnes (a rise of 17.7%), to 6.98 million tonnes.
According to a report published on the USDA website, the projection for sunflowerseed production in Ukraine in the current marketing year has been improved by 2.6 million tonnes (a rise of 18.5%), to 16.7 million tonnes.
In its June report, the USDA improved its forecast for Ukraine’s exports of sunflowerseed meal in 2021/22 by 0.7 million tonnes (a rise of 15.2% versus 2020/21), to 5.3 million tonnes, its production – by 1.01 million tonnes (a rise of 17.7%), to 6.71 million tonnes.
According to the USDA, Ukraine in 2021/22 will remain the main world exporter of sun sunflowerseed flower oil, while world production of sunflowerseed oil will grow by 10.2%, to 21.15 million tonnes.
The National Bank of Ukraine (NBU) has revised its inflation forecast from 7% to 8% in 2021, expecting inflation to return to the 5% target in H1 2022.
“Considering the fast-paced recovery of the global economy and higherinflationary pressures, the NBU revised its inflation forecast from 7% to 8% in 2021, expecting inflation to return to the 5% target in H1 2022 and settle at this level further on,” the NBU said on its website on Thursday.
The central bank said that inflation will peak in Q3 2021. Inflation will start to decelerate in autumn, return to the 5% ± 1 pp target range in H1 2022, and subsequently remain there.
The steep rise in inflation was largely driven by temporary factors, such as growing global prices for food and energy. A revival in the global economy and the effects of smaller harvests continued to push up prices. A low comparison base also played an important role.
Underlyinginflationary pressures increased due to sustained growth in consumer demand, which was, among other things, fueled by higher wages, the NBU said.
Retail turnovers consistently exceeded pre-crisis levels, being 5.6% year-over-year larger in February, the central bank said.
Oxford Economics has improved its forecast for Ukraine’s real GDP growth in 2021 to 4.9%, up from 4% in the February forecast.
As evidenced by the May forecast, which is available to Interfax-Ukraine, the analysts have worsened their expectations for the growth of the Ukrainian economy in 2022 to 3.7% compared to the February forecast being 4.2%, and in 2023 they expect the decline in rates to continue – growth to 2.9%.
Strong growth in industrial production in April, a year after a series of lockdowns, marks a turning point that will see GDP grow by almost 5% this year, and then just over 3.5% in 2022, Oxford Economics said.
At the same time, the average annual hryvnia exchange rate in 2021 is expected at UAH 28.60/$1, in 2022 – UAH 29.30/$1, in 2023 – UAH 29.40/$1, according to Oxford Economics.
The analysts have raised their inflation forecast to 7.2% this year (in the February forecast it was 6.9%), and in the next two years they expect prices to rise by 4.9% and 5.2%, respectively.
The analysts continue to expect the current account to return to a deficit of 1.5% of GDP this year, while in 2020 the current account surplus reached 4% of GDP. According to their estimates, in 2022 and 2023 this indicator will remain in deficit and will amount to 2% and 1.7%, respectively.
Private investment is projected to recover cautiously, so the recovery will be more dependent on household and government spending. However, rising demand will push companies to further expand their production capacity from 2022.
Oxford Economics expects the budget deficit this year to be 4.6%, and in 2022 and 2023 it will decrease to 3.2% and 3.4%, respectively.
At the same time, the analysts predict a reduction in the ratio between public debt and GDP from 59.2% in 2020 to 56% in 2021, as well as to 52.4% and 49.7% in the next two years.
Oxford Economics expects Ukraine to be able to unlock the IMF program in the third quarter of 2021. At the same time, political risks remain high, according to the forecast.
