The decline in Ukraine’s real gross domestic product (GDP) in the first quarter of 2023 compared to the same period last year will slow to 19% from 35% and 30.8% respectively in the fourth and third quarters of 2022, the National Bank of Ukraine has published this forecast in an inflation report on its website.
According to him, in the second quarter of 2023 the economy will begin to recover and immediately 11.7%, given the low base of the second quarter of last year, when the decline was 37.2%.
In the third and fourth quarters of this year, the National Bank expects growth to slow to 1.5% and 8.2%, respectively, and real GDP will grow by 0.3% this year after a 30.3% decline last year.
The NBU’s updated estimates of the GDP dynamics are worse than last October, when it expected the economy to decline by 17.5% in the first quarter of this year and to grow by 13.9% in the second quarter, and by 4% for the year as a whole.
For next year, the National Bank has worsened its growth forecast from 5.2% to 4.1%, and expects growth to accelerate to 6.4% in 2025.
“The baseline scenario is based on the assumptions of launching a new cooperation program with the IMF, conducting a coordinated monetary and fiscal policy, the gradual leveling of quasi-fiscal imbalances, in particular in the energy sector. Also, the baseline scenario assumes a tangible reduction of security risks from the beginning of 2024, which will contribute to the full unblocking of seaports, reduction of the sovereign risk premium and the return of forced migrants to Ukraine,” the report notes.
It also provides for the absence of new critical damage from shelling, as well as the successful work of the government to attract international aid for the energy sector and the intensive restoration or replacement of damaged infrastructure.
The NBU specifies that the baseline scenario assumes a reduction in net outflows from Ukraine this year to 0.8 million from 8 million last year and a gradual return of 1.5-1.4 million in 2024-2025.
The central bank adds that this forecast also assumes continued active international financial support for Ukraine of $38.6 billion in 2023, $20 billion in 2024 and $8 billion in 2025, up from $32.5 billion last year.
The strongest risk for this scenario, the National Bank calls the prolongation of the war and its escalation, estimating its probability from 25% to 50%.
With 15-25% probability the National Bank considers such risks as increased emigration and growing energy shortages due to damaged infrastructure and unbalanced state finances (freezing of utility rates, cuts in international aid, emission deficit financing).
The NBU also names among the moderate risks of the baseline scenario a delay in the program with the IMF and the termination of the “grain corridor”, but their probability is lower – less than 15%.
The report also mentions such factor as “Marshall Plan”, which can strongly influence and improve macro-forecast, but its probability is estimated by the central bank below 15%.
The National Bank of Ukraine (NBU) expects that the grain harvest in 2023 will decrease by 15% compared to 2022 and will amount to 46 million tons, said deputy head of the National Bank of Ukraine (NBU) Serhiy Mykolaychuk.
“For this year, we assume that the grain harvest will be about 46 million tons and this is about 15% less than last year. For other crops, the situation is better. Somewhere even more than last year we allow for the harvest, somewhere less,” he said during a press briefing on Thursday.
Nikolaychuk noted that the harvest is one of the factors that the NBU took into account when revising the GDP forecast and when forecasting the trade balance and current account deficit.
The National Bank of Ukraine (NBU) has improved its inflation forecast for 2023 to 18.7% (the October forecast was 20.8%), as the market expected, the regulator’s press service said Thursday.
“The NBU forecasts a slowdown in inflation to 18.7% in 2023. This will be facilitated by continued tight monetary conditions, lower global inflation and weaker consumer demand amid power outages,” the statement explained.
It is pointed out that the receipt of announced volumes of international aid and joint actions of the NBU and the government on boosting the market of domestic debt attracting will allow to avoid emission financing of the budget deficit and to balance the currency market.
The regulator expects that inflation will slow down more quickly in the years to come due to lower security risks, a full recovery in logistics and an increase in yields.
The NBU, in particular, predicts that it will fall to 10.4 percent in 2024 and 6.7 percent in 2025.
“The main contribution to inflation in these years will have an administrative component due to the need to bring tariffs for housing and communal services to market levels,” the central bank explained.
It is noted that over the past three months the annual inflation rate has remained almost unchanged.
Stabilization of inflationary pressure was facilitated by the de-occupation of territories, the expansion of food supply, measures taken by the NBU and weaker consumer demand amid Russia’s energy terror.
At the same time, price pressures remain significant due to the aftermath of the war, including the destruction of enterprises and infrastructure and disruption of production and supply chains. Inflation expectations remained elevated despite stabilization.
The National Bank named the first issue of domestic government bonds (OVGZ) – benchmark OVGZ with which banks will be able to form up to 50% of the increased required reserves – this issue (ISIN UA4000227045) maturing August 7, 2024, which the Ministry of Finance first placed at an auction on January 3.
“According to estimates of the NBU, such a step will contribute to a more active participation of banks in the primary market of government bonds and, as a result, prevent the emission financing of the budget deficit in 2023 and the absorption of part of the free liquidity of the banking system,” the central bank said in a statement on its website on Friday.
According to it, the NBU adopted the relevant decision № 7 on January 5, it comes into force on January 10.
Only one buyer bought the securities at the initial auction on January 3 – for 1.077 billion hryvnyas at 19.25% per annum.
As earlier reported, on December 8, the NBU announced that from January 11 it will raise the required reserve ratio for current accounts (demand deposits) in UAH and foreign currency by 5 p.p. – The bank will allow to cover up to 50% of the total volume of the required reserves at the expense of benchmark OVDPs.
The mandatory reserves for the period from December 11, 2022 to January 10, 2023 amount to UAH 69.76 billion, while the volume of banks’ funds in certificates of deposit is about UAH 466 billion.
According to estimates of the National Bank, such a decision will allow the Ministry of Finance to attract an additional UAH 50 billion.
In the Memorandum with the IMF on the Monitoring Program with the Board of Directors it was stated that over 60% of the OVDP-benchmarks will be new securities, while up to 40% will be already circulating in the market with maturity after January 1, 2024.
Currently, the Ministry of Finance lists 10 issues of benchmark OVDPs on its website, of which the National Bank has so far recognized only one new issue listed above. In addition, the Ministry of Finance lists three more issues maturing in 2023, three in 2024: in February, May and October, and one each maturing in 2025 (in February), 2026 (in May) and 2027 (in May).
Net sales of dollars by the National Bank of Ukraine (NBU), after jumping to $1 billion 101.79 million in the last week of last year, fell to $674.7 million in the first week of the new year.
According to the National Bank on its website, it bought $7.9 million from Jan. 2 to 6, which corresponds to the usual volume of purchases during the war, while it sold $682.6 million, compared to $1 billion 101.79 million a week earlier.
At the cash market the dollar went up again at the level of about 40.75 UAH/$1, but the spread has narrowed a bit.
As we informed, the volume of the NBU’s interventions in December increased to $3.16 bln from $1.57 bln in November and $2.03 bln in October.
Overall for 2022, the NBU bought $3 billion 268.0 million and EUR111.0 million from the market and sold $26 billion 380.6 million and EUR1 billion 789.1 million.
Including the purchase of foreign currency has reached $2 billion 611.1 million and EUR111.0 million since the war began, while the sale – $23 billion 610.4 million and EUR1 billion 789.1 million.
International reserves of the National Bank increased by 1.9% or $536.4 million in December to $28.491 billion due to currency receipts from international partners, which exceeded the NBU interventions to sell foreign currency to support the fixed rate.
Overall, they fell by 7.9%, or $2.45 bln in 2022.
The National Bank of Ukraine has cancelled licenses for four financial companies and one credit union, and excluded two credit unions from the State Register of Financial Institutions, according to the regulator’s website.
According to the NBU, the decisions of December 12, all licenses of Holastis Financial Company LLC, Maximum Financial Company LLC and Credit Finance Ukraine Financial Company LLC have been annulled.
As reported, on October 19, 2022 the mentioned institutions have been applied sanctions in the form of temporary suspension of licenses to provide financial services due to non-provision of information and documents about the ownership structure requested by the National Bank of Ukraine. As of the moment of taking decision on cancellation of licenses the violations have not been eliminated.
Besides, LLC “FC “Plaza Inves” has its license for provision of financial leasing services revoked due to failure to provide any financial service under this license during 12 months since the day of its issuance.
CC “Ukrainian Oshchad Center” is also excluded from the State Register of financial institutions due to the cancellation of all previous licenses and CC “Elliada” on the basis of its own application, guided by the special procedure during martial law.
