Dragon Capital investment company, taking into account the increase in exports of raw materials through the sea corridor, a stable energy situation and a good harvest, improved its forecast for economic growth in 2023 from 4.5% to 5.2%, but kept it at 4% for 2024, the company said in a press release on Friday.
“Our updated estimate is that real GDP will grow 5.0% year-over-year in the fourth quarter of 2023, from the 3.0% we previously estimated,” the company said in a statement.
Its analysts estimate that Ukraine exported about 4 million tonnes of commodities through the new sea corridor in November, from 2 million tonnes in October. At the same time, agricultural goods accounted for about 60-70%, and the remaining share was occupied by the export of iron ore and steel. This dynamics contributes to the revitalization of related sectors, in particular freight transportation and trade, contributes to the recovery of ore production and metallurgy products, and also improves the financial indicators of agricultural enterprises, reducing risks to the harvest in 2024.
Dragon Capital, taking into account the latest data on yields of major agricultural crops, has improved its expectations for the harvest of grains and oilseeds this year from 77 million tonnes to 80 million tonnes (11% more year-over-year).
At the same time, the investment company said that an unexpected and unfavorable event was the blockade of the main crossing points of the Ukrainian-Polish border by Polish truckers in early November, which will have a limited adverse impact on economic activity.
Among the downsides of the blockade of the Ukrainian-Polish border are a decrease in state budget receipts, losses for manufacturers oriented towards the EU market, mainly in the food industry, woodworking and production of automotive electronics, a shortage of certain energy materials such as LPG, a delay in volunteer assistance for the front and financial losses of enterprises due to queues.
At the same time, Dragon Capital said, since the import of goods from the EU to Ukraine by road exceeds exports by $1.1 billion per month, the blockade leads to a reduction in the foreign trade deficit, which in recent months has fluctuated in the range of $2.8-3.0 billion per month.
“Due to the reduction in imports, some Ukrainian manufacturers of consumer goods are gaining a temporary competitive advantage,” the company added.
Speaking about the 4% forecast for economic growth next year, Dragon Capital named the partial restoration of exports by seaports as one of its key drivers and, accordingly, an increase in production in related sectors (ore mining, metallurgy, freight transportation, domestic trade). “The development of the domestic defense industry would also contribute to the economy,” the company said.
At the same time, the investment company said that economic recovery in 2023-2024 will not compensate for the 29% decline in 2022 caused by the consequences of the full-scale Russian invasion of Ukraine, and real GDP in 2024 will remain 22% below its pre-war level.
“At the same time, nominal GDP in U.S. dollars could reach its pre-war level of $200 billion as early as next year due to relative exchange rate stability and high average annual inflation,” Dragon Capital said in the press release.
The company maintained its inflation forecast for this and next years at 6% and 8%, respectively, with the National Bank’s key policy rate unchanged at 15% after its expected reduction from 16% at the next meeting on December 14.
Dragon Capital also noted the importance of financial assistance from partners, pointing out that if there is a shortage, the government will have to turn to monetization of the budget deficit, which will decrease next year from 25% of GDP to 21% of GDP, or to increase the tax burden.
“We expect international partners to approve new economic support packages for Ukraine and provide about $40 billion in direct budget funding in 2024, although a delay in the release of funds is possible early next year,” the company said.
The company’s analysts expect that, subject to such external revenues, the National Bank’s gold and foreign exchange reserves will begin to gradually grow and reach $45 billion by the end of the year.
Dragon Capital kept its exchange rate expectations unchanged – UAH 37.30/$1 on average for 2024 and UAH 39.00/$1 at the end of the year.
Real GDP percentage changes over previous period in 2014-2023
Source: Open4Business.com.ua and experts.news
The volume of Ukraine’s gross external debt increased by $8.8bn during the second quarter of this year and amounted to $148.6bn at the end of the half-year, according to the website of the National Bank of Ukraine (NBU).
“Relative to GDP, the debt increased from 90.5% to 92.7%,” the National Bank noted.
At the same time, the external debt of the public sector for the second quarter of 2023 increased by $8.4 billion to – $84.5 billion (52.7% of GDP), while the debt of the private sector – by $0.4 billion to $64.1 billion (40% of GDP).
As indicated by the National Bank, the growth in the public sector was due to net attraction of $8.8 billion in loans from international partners, including $3.6 billion from the International Monetary Fund (IMF), while the government debt on securities decreased by $0.12 billion.
According to the central bank, the volume of external liabilities of Ukrainian banks decreased by $0.08bn to $1.8bn (1.1% of GDP), mainly due to the reduction of debt on loans by a similar amount.
External debt of other sectors of the economy increased by $0.2bn to $41.3bn (25.8% of GDP). As explained by the regulator, this was due to the growth of external debt on guaranteed loans – by $0.14 billion and securities – by $0.05 billion.
Debt of other sectors of the economy, including intercompany debt, increased by $0.52 billion to $62.3 billion (38.9% of GDP) in the reporting quarter.
Direct intercompany debt of enterprises in direct investment relations increased by $0.28 billion to $21 billion (13.1% of GDP) in the quarter due to the increase in external debt on credits and loans of direct investors by $0.26 billion.
The NBU estimated the increase in private sector debt due to exchange rate changes at $0.4 bln.
The volume of overdue debt of the real sector on non-guaranteed loans (including from direct investors) increased by $0.13bn in April-June and amounted to $25.4bn (15.9% of GDP) at the end of the second quarter. According to the NBU, the share of Cyprus in it is 58.1%. In addition, the shares of the UK increased by 1 percentage point (p.p.), to 9.2%, and the Netherlands – by 3 p.p., to 5.8%.
According to the National Bank, Cyprus at the end of the second quarter remained the main creditor country in terms of the geographical structure of private sector debt on non-guaranteed loans (together with intercompany debt) – 49.2% of the total volume, its share since the beginning of the year increased by 0.4 p.p.
The shares of the Netherlands, Germany and Switzerland increased by 0.1 pp. to 7.3%, 3.0% and 2.6% respectively, while the share of the USA remained at 3.0% and the shares of the UK and Luxembourg decreased by 0.1 pp. – to 10.7%.
The main currency of Ukraine’s external borrowings at the end of Q2 2023 remains the US dollar – 50% of total external debt, but its share decreased by 3 p.p. over the quarter. At the same time, the share of borrowings in euros increased from 31.9% to 33.8%, as well as in SDRs to the IMF – from 9.9% to 11.4%, while the share of external debt in hryvnia decreased by 0.2 p.p. to 1.6%. – to 1.6%.
The volume of short-term external debt by residual maturity for the second quarter of 2023 increased by $1.2 billion and amounted to $40.8 billion as of June 30, 2023.
Meanwhile, general government liabilities that require repayment over the next 12 months increased by $0.9 billion to $3.8 billion due to higher future government loan repayments, including $0.2 billion to the IMF, while central bank repayments decreased by $0.18 billion to $1.3 billion due to lower IMF repayments.
The volume of short-term liabilities of the banking sector remained almost at the level of the previous quarter and amounted to $1.3 bln.
The total volume of real sector borrowings (together with intercompany debt), which are to be repaid over the next 12 months, increased by $0.5bn and amounted to $34.4bn as of June 30, 2023. The National Bank specified that the growth is due to an increase in the volume of future repayments on debt securities by $0.4bn.
Experts Club research project and Maxim Urakin recently released an analytical video about the economy of Ukraine and the world.
Subscribe to the Experts Club YouTube channel by clicking here – https://www.youtube.com/@ExpertsClub
The gross domestic product (GDP) of Ukraine after a decrease in the first quarter of 2023 by 10.5% against the first quarter of 2022 in the second and third quarters switched to growth, is indicated in the explanatory note to the government’s draft state budget for 2024.
“According to estimates of the Ministry of Economy, at the end of eight months, growth is 3%,” the document says.
According to it, “certain types of economic activities” managed to quickly adapt to the consequences of the destruction of the dam of the Kakhovskaya HPP.
“Better than expected results of economic activity are due to the rapid adaptation of enterprises to the new conditions of activity together with the recovery of domestic demand, which was the traditional driver of growth of the Ukrainian economy in previous years,” – noted in the explanatory note.
First Deputy Prime Minister and Minister of Economy Yulia Sviridenko announced last week that the forecast for GDP growth in 2023 had been raised to 4%, but the explanatory note still says that the economy will grow by 2.8% this year with inflation at 14.7%, although it fell to 8.6% in August.
According to the explanatory note, the Ministry of Economy as of mid-June this year predicted GDP growth next year by 5% with inflation falling to 10.8% at the end of the year.
The National Bank of Ukraine in late July raised its forecast for Ukraine’s GDP growth in 2023 from 2% to 2.9%, but lowered it for 2024 from 4.3% to 3.5%. In addition, the NBU improved its inflation estimate this year from 14.8% to 10.6%, and next year – to 8.5%.
Experts Club Research Project and Maxim Urakin recently released an analytical video about the economy of Ukraine and the world.
You can subscribe to the Experts Club YouTube channel by following the link – https://www.youtube.com/@ExpertsClub
The European Commission (EC) has downgraded its forecast for eurozone economic growth in 2023 to 0.8% from the previously expected 1.1%.
In 2024, eurozone GDP is expected to grow by 1.3% rather than 1.6%, the EC said in a review.
The forecast for EU economic growth for this year has been worsened to 0.8% from 1% and for next year to 1.4% from 1.7%.
“The latest statistical data confirm that economic activity in the EU has been subdued in the first half of 2023 due to the severe shocks facing countries in the region. Weakness in domestic demand, especially consumer spending, shows that high prices for most goods and services are putting more pressure on the economy than we believed in our previous forecast,” the survey said.
“The sharp contraction in bank lending suggests that monetary tightening in the euro area is having an impact on the economy,” the EC said. – Various surveys point to a slowdown in economic activity over the summer and the following months. Weakness in the industrial sector persists, and the impetus for growth in the services sector is weakening”.
EC experts emphasize that the situation in the world economy in the first half of the year was slightly better than expected, despite the weak dynamics in China. Nevertheless, the EC forecasts for the world economy and international trade volumes are practically unchanged, which means that European countries cannot count on support from external demand.
The EC expects global GDP to expand by 3.2% both this year and next year.
“The momentum towards slower growth in the EU is likely to continue into 2024, as tight monetary policy will continue to constrain economic activity. At the same time, we expect GDP growth to pick up slightly next year as inflation slows, the European labor market remains strong and household incomes gradually recover,” the EC review said.
The eurozone inflation forecast (HICP index) for this year has been lowered to 5.6% from 5.8%, for next year – raised to 2.9% from 2.8%. In the EU, according to the EC’s updated forecast, inflation will be 6.5% this year (previously 6.7%) and 3.2% next year (previously 3.1%).
The EC expects that energy prices in Europe will continue to decline until the end of 2023, but more slowly than before. At the same time in 2024 they may again slightly increase due to the expected rise in oil prices.
The EC review notes that the war in Ukraine and other geopolitical factors still carry risks for Europe.
In addition, experts warn that the tightening of monetary policy may put more pressure on the economy than expected at the moment. On the other hand, it may lead to a faster easing of inflation and, accordingly, accelerate the recovery of real incomes, the review notes.
According to the EC’s forecast, Germany’s GDP will contract by 0.4% in 2023 and grow by 1.1% next year. Previously expected to increase the first indicator by 0.2%, the second – by 1.4%.
France’s economic growth forecast for 2023 has been raised to 1% from 0.7%, for the next year it has been lowered to 1.2% from 1.4%.
Italy’s economy is expected to grow by 0.9% and 0.8% in 2023 and 2024 respectively, while Spain’s is expected to grow by 2.2% and 1.9%.
Experts Club Research Project and Maxim Urakin recently released an analytical video about the economy of Ukraine and the world.
Subscribe to the Experts Club YouTube channel by clicking here – https://www.youtube.com/@ExpertsClub
The Ministry of Economy has raised its forecast for Ukraine’s gross domestic product (GDP) growth in 2023 to 4%, First Deputy Prime Minister and Minister of Economy Yulia Svyrydenko said in Kyiv on Saturday at the annual meeting of the Yalta European Strategy organized by the Victor Pinchuk Foundation.
“This year, we believe that GDP growth will be 4%, although pessimists believe that 3%… We have maintained macro stability, this is the basis for further recovery of Ukraine,” she said.
Svyrydenko clarified to Interfax-Ukraine that the government has not yet approved the forecast for 2024, while the National Bank of Ukraine expects GDP growth of 3.5%, and up to 6.8% in 2025.
“We are always more optimistic than the National Bank,” the First Deputy Prime Minister and Minister of Economy said.
She added that inflation, according to the NBU’s forecast, will slow to 10.6% this year, and core inflation to 9%.
In her speech, the First Vice Prime Minister also reminded that the NBU had recently cut the discount rate to 22% per annum.
“As a participant in this discussion, I will say that I was in favor of a bigger reduction. I think that our macroeconomic situation allows us to be more flexible, but, as always, realistic,” Svyrydenko said.
According to her, the Ministry of Economy sees improvements in the agricultural sector and expects that in November a working instrument for military insurance will be created through the efforts of both the Ukrainian government and the European Bank for Reconstruction and Development (EBRD).
The First Deputy Prime Minister emphasized that the government is also actively working on a four-year development plan under the Ukraine Facility program announced by the EU, which will start operating in early 2024 and will become the basis for further growth of its economy.
As reported, in June, the Ministry of Economy slightly downgraded its GDP forecast for this year from 3.2% to 2.8% due to the destruction of the Kakhovka hydroelectric power plant and pessimistic expectations for the upcoming harvest. According to Natalia Gorshkova, Director of the Strategic Planning and Macroeconomic Forecasting Department of the Ministry of Economy, in early August, the Ministry had already assumed economic growth of 5% in 2023, but so far it has conservatively maintained the 2.8% estimate, taking into account the existing risks. At that time, the Ministry of Economy predicted that GDP growth would accelerate to 5% next year, with inflation slowing to 10.8%.
At the end of July, the National Bank of Ukraine raised its forecast for Ukraine’s GDP growth in 2023 from 2% to 2.9%, but lowered it for 2024 from 4.3% to 3.5%. In addition, the NBU improved its inflation estimate this year from 14.8% to 10.6%, and next year to 8.5%.
In August, inflation in Ukraine fell to 8.6% in annual terms.
The Experts Club research project and Maksym Urakin recently released an analytical video about the economies of Ukraine and the world – https://youtu.be/zCJ1cU3n0sY?si=LFj-pDmojahwtHkA
You can subscribe to the Experts Club YouTube channel at https://www.youtube.com/@ExpertsClub
