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.
The Ministry for Development of Economy, Trade and Agriculture maintains its forecast for the growth of Ukraine’s GDP in 2021 at 4.6%, Minister Ihor Petrashko, has said, commenting on a statement by Deputy Head of the Office of the President Yulia Svyrydenko about the expected GDP growth of 5.1% in 2021.
“We keep our forecast at 4.6%, the first quarter it is 3% down, so far for the two months it is 2.2% down,” Petrashko said in an exclusive comment to Interfax-Ukraine on Thursday on the sidelines of the Ukraine 30 forum.
This forecast takes into account the risks of additional lockdowns, the minister said.
“We hope that there will be no [strict quarantine restrictions]. Last year we predicted a 4.8% decline of the economy, but in fact we got a drop of 4.2%,” Petrashko said.
“There are no such talks [about an all-Ukrainian lockdown] for the entire Ukraine,” he said.
The U.S. Department of Agriculture (USDA) in May improved the forecast for the export of Ukrainian sunflowerseed oil in 2021/2022 (September-August) by 18.9% compared to 2020/21, to 6.4 million tonnes, with an increase in its production by 17.7%, to 6.99 million tonnes. According to the monthly report of the department, in 2021/2022, an increase in sunflowerseed production in Ukraine is expected by 18.4% compared to 2020/2021, to 16.7 million tonnes, sunflowerseed meal exports are expected to grow by 16.4%, to 5.3 million tonnes.
The USDA said that the growth in exports of sunflower oil and meal compared to the low level of the last marketing season will be due to the recovery of oil extraction volumes in Ukraine.
The U.S. Department of Agriculture also said that Ukraine rapeseed production is forecast to recover from last season’s low level, rising 200,000 tonnes to 3.0 million. Exports are projected to rise 190,000 tonnes to 2.6 million. Exports of rapeseed meal at 175,000 tonnes and oil at 165,000 tonnes are forecast to rise.
J.P. Morgan is committed to its forecast of 5.6% growth for Ukraine’s economy in 2021, despite continuing quarantine restrictions, the bank said in its April commentary.
The bank still believes that in 2021 growth will exceed 5%, mainly due to internal factors, but will also be supported by external demand. As the European and global economy recovers in the second half of 2021, Ukrainian exports should increase in volume and contribute to growth,” the analysts said.
They pointed to good performance in the fourth quarter of last year and strong growth in retail sales, confirming the view that consumption will be an important driver of growth this year as well.
J.P. Morgan said that a serious decline in investment and a reduction in inventories were the main negative factors in the decline in GDP by 4% last year, but this year the situation in these areas will improve. In particular, the analysts expect investments to rebound by almost 30% after falling by more than 24% last year and reaching pre-crisis levels. In their opinion, restocking will provide significant additional impetus to growth in 2021.
According to the bank’s forecast, vaccination will progress very slowly, more than half of the population will be vaccinated by about the middle of 2022; therefore, consumer spending will be mostly domestic.
J.P. Morgan pointed out a possible serious aggravation of the situation with COVID-19 or geopolitical events among the risks.
Commenting on cooperation with the IMF, the analysts maintain expectations that Ukraine will receive financing from the IMF in the third quarter, despite the slow implementation of the commitments. In their opinion, the IMF mission is likely to return in the second quarter of 2021 and among the main issues will be the discussion of the laws on the High Council of Justice, NABU and strengthening responsibility for electronic declarations introduced to the Rada, as well as the preservation of the NBU’s independence. J.P. Morgan also said that U.S. officials named the resumption of cooperation with the IMF and IFIs, as well as reforms in the justice sector, among the conditions of financial support for Ukraine.
Speaking of inflation, the analysts expect it to rise to about 9% by the third quarter of 2021 and increase the key policy rate by the National Bank by 50 basis points – to 7% at the next meeting. In their opinion, further this year the key policy rate will reach 7.5%, and next year – 9.5%. J.P. Morgan believes that 2022 will be more challenging for the NBU, as rather high real interest rates will be required to bring inflation down to 5%, especially given the expected current account deficit compared to a large surplus in 2020.
According to the document, a high GDP deflator (9.8% last year) implies an increase in budget receipts in 2021, in connection with which the analysts predict the budget deficit this year is slightly higher than 4% of GDP compared to 5.5% of GDP in the official forecast.
The World Bank revised upward its forecast for Ukraine’s gross domestic product (GDP) growth in 2021 to 3%, while early October it estimated the prospects for recovery to be twice as modest – at 1.5%.
According to the January 2021 World Bank’s Global Economic Prospects, estimates of the fall of the Ukrainian economy this year at 5.5% and its growth by 3.1% in 2021 remained at the same level.
As reported, the Ministry for Development of Economy, Trade and Agriculture of Ukraine maintains an estimate of the fall in Ukraine’s GDP in 2020 by 4.8% at the end of the year and expects its growth by 4.6% in 2021.
The National Bank of Ukraine (NBU) had previously expected the economy to decline by 6% last year, but towards the end of the year it improved its estimates, to about 5%, predicting a recovery in 2021 by 4.2%. The updated macroeconomic forecast of the NBU will be announced on January 21.
The Ukrainian Agribusiness Club (UCAB) has revised downward the forecast for the corn harvest this year from 32 million tonnes to 29.4-29.5 million tonnes under the optimistic scenario due to unfavorable weather conditions during July-August, and also taking into account the situation with harvesting in September and October in a number of regions of Ukraine.
According to a message from UCAB on Wednesday on Facebook, about 13 million tonnes of corn have already been harvested with an average yield of 5.18 tonnes per ha, in some regions corn has already been harvested from more than 50% of the sown area.
“Usually, farmers start harvesting first from less productive fields, so there is some hope, as well as statistical confirmation from the example of last year, when at the end of the harvest, the yield increases slightly. By the end of field work, according to optimistic forecasts, an average yield of 5.75 tonnes per ha is expected,” UCAB said.
According to the Ukrainian Agribusiness Club, unfavorable conditions have developed almost throughout the entire territory of Ukraine, however, the greatest reduction in the expected yield occurred in Cherkasy, Vinnytsia, Poltava, Kirovohrad and a number of southern regions. As a result of dry conditions and a lack of moisture in the soil, premature drying and maturation of plants is observed. During field surveys, insufficient fullness and relatively small sizes of corn ears are often detected.
UCAB’s expectations for the sunflower harvest have been reduced to 12.2 million tonnes from the forecast of 13.6 million tonnes in early September. According to calculations, the average yield is 2.2 tonnes per ha. The largest decline was due to the southern regions, where the production of this oilseed is focused, as well as the central ones.
According to UCAB, soybeans also suffered significantly from unfavorable conditions, so its gross yield is expected to be only 2.7 million tonnes, which is 30% less than last year. This significant decrease occurred, among other things, due to a decrease in the area under crops from 1.6 to 1.3 million hectares.
