The International Monetary Fund (IMF) has worsened its forecast for real gross domestic product (GDP) growth for this year from 3-4% to 2.5-3.5% at the end of the fourth review of the EFF extended financing program, while improving its year-end inflation forecast from 8.5% to 8%.
“We are now seeing clear signs of a slowdown in growth due to deteriorating sentiment as military action develops and also due to power outages,” Gavin Gray, head of the International Monetary Fund (IMF) mission to Ukraine, said at a press conference on Friday evening after Ukraine’s tranche was disbursed.
Risks remain exceptionally high, he said, especially due to uncertainties related to the war and external financing.
According to a publication on the Fund’s website, for next year, expectations for Ukrainian economic growth have been worsened to 5.5% from 6.5%, while maintaining the inflation estimate of 7%.
The IMF also lowered its forecast of Ukraine’s nominal GDP for this year to UAH 7.49 trillion from UAH 7.75 trillion in its March review, and for next year to UAH 8.74 trillion from UAH 8.87 trillion.
In terms of GDP composition, the IMF slightly worsened expectations for net exports, while expecting a larger contribution from domestic demand, private consumption and investment compared to the March revision.
The Fund improved the inflation forecast for the end of this year to 8% from 8.5%, maintaining its expectations for its slowdown to 7%, 5.5% and 5% in 2025-2027, but lowered expectations for real income growth this year and next year: by 1.2 p.p. to 8.6% and by 1 p.p., respectively. – to 8.6% and by 1 p.p. to 6.8%. – to 6.8%.
Also, the fourth revision slightly worsened the unemployment estimate: to 14.8% from 14.5% this year and to 14.3% instead of 13.8% next year.
As for the budget, the IMF has increased the estimate of its deficit (excluding grants) – to 20.9% of GDP from 20.2% of GDP for this year, to 10.4% of GDP from 10.3% of GDP for 2025.
According to the document, expectations for external financing have been improved to 12.1% of GDP from 11.8% of GDP and domestic financing to 2.1% of GDP from 2% of GDP, which should be provided by banks, while the estimate of external financing for next year remained at 6.5% of GDP, domestic – 0.9% of GDP with a reduction in the participation of banks to 0.5% of GDP.
As reported, last year the Ukrainian economy, according to the State Statistics Committee, grew by 5.3% after falling by 28.8% a year earlier, and in the first quarter of this year growth amounted to 6.5%.
On April 25 this year, the NBU worsened the country’s GDP growth forecast for this year from 3.6% to 3%.
The government, when approving the draft state budget for the second reading in early November 2023, projected economic growth this year at 4.6%, but the Finance Ministry recently said it had been worsened to 3.5%, and First Deputy Prime Minister Yulia Sviridenko said in mid-June in Berlin that the forecast had been worsened to less than 4%.
Real gross domestic product (GDP) of Ukraine in the first quarter of 2022 fell by 15.1% compared to the first quarter of 2021 after growing by 6.1% in the fourth quarter of last year, the State Statistics Service published such a preliminary estimate on Thursday.
According to her, compared with the previous quarter (seasonally adjusted), GDP fell by 19.3%.
According to the State Statistics Service, in 2021, Ukraine’s GDP grew by 3.4% after a decline of 3.8% in 2020, its nominal volume amounted to about $200 billion.
The Ministry of Economy estimated the decline in GDP in the first quarter of this year at 16%. According to the World Bank, which predicts a decline in the Ukrainian economy this year by 45.1%, the Ukrainian authorities expect it to decline by 44%.
Ukraine’s GDP in 2022 will fall by 45.1%, the World Bank predicts, recalling that before the Russian invasion, it expected the Ukrainian economy to grow by 3.2% this year.
According to its Europe and Central Asia Economic Update amid the war unleashed by Russia and its consequences, in 2023 the Ukrainian economy is expected to recover by only 2.1%, which is also worse than previous expectations of 3.5%.
“Russia’s invasion of Ukraine has triggered a catastrophic humanitarian toll and severe economic contraction… The impact on poverty is also likely to be devastating, although it is hard to quantify at this stage. Based on the international poverty line of $5.50 per day, poverty is projected to increase to 19.8% in 2022, up from 1.8% in 2021, with an additional 59% of people being vulnerable to falling into poverty,” the World Bank said in the report.
According to the document, simulations using the most recent macroeconomic projection show that the share of the population with incomes below the actual subsistence minimum (the national poverty line) may reach 70% in 2022, up from 18% in 2021. In the absence of a massive post-war support package, this indicator would still be higher than 60% by 2025, the bank added.
According to the World Bank’s forecasts, private consumption in Ukraine this year will fall by 50%, while public consumption by 10%, and capital investment will drop by 57.5%. Exports of goods and services will be reduced by 80%, imports – by 70%, while the public debt to GDP ratio will increase from 50.7% to 90.7%. The forecast for the consumer price index is 15% with an increase to 19% next year.
World Bank experts expect this year a current account deficit of the balance of payments of 6.8% of GDP and its expansion to 16.8% in 2023, a fiscal deficit (non-military) – 17.5% and 26.5%, respectively.
Even for 2024, the World Bank predicts an acceleration of economic growth to only 5.8% with inflation of 8.4%
“In coming years, a major reconstruction effort is expected to push growth to over 7% by 2025 amid a slow restoration of productive and export capacity and gradual return of refugees. Still, by 2025, GDP will be a third less than its pre-war level in 2021,” the World Bank said.
The World Bank explains the absence of a strong rebound in economic growth in 2022-2023 by saying that the war has destroyed a critical amount of productive infrastructure—including rail, bridges, ports, and roads—rendering economic activity impossible in large swathes of areas. Goods trade has come to a grinding halt, as damaged transit routes prevent goods by land while the loss of access to the Black Sea cuts off half of Ukraine’s exports and 90% of its grain trade. The planting and harvest seasons have been disrupted, the World Bank said.
“The magnitude of the contraction, however, is subject to a high degree of uncertainty related to the duration and intensity of the war. Still, the repercussions are anticipated to reverberate beyond the short-term collapse in domestic demand and exports, as output is scarred by the destruction of productive capacity, damage to arable land, and smaller labor supply – especially if refugees are slow to return or choose to remain permanently outside Ukraine,” the World Bank said.
Learning losses from the pandemic are expected to be amplified by the war given the destruction of schools and disruption to schooling. The Bank, referring to UNICEF data, said that the war had displaced 4.5 million children – more than half of Ukraine’s estimated 7.5 million child population – likely disrupting education, setting back development goals, and eroding long-term potential growth prospects.
“With physical capital and vital assets destroyed and degraded, combined with scarring from the war and pandemic, the recovery will be more difficult without significant reconstruction efforts and capital flows,” the World Bank said.
The gross domestic product of Ukraine in the first quarter of 2022, due to the war started by Russia, fell by 16% compared to the same period last year, this is the estimate of the Ministry of Economy of the country.
“Russian aggression against Ukraine has radically changed our economy. Our forecast for a decline in GDP in the first quarter of 2022 is 16%, and the annual decline could reach 40%,” First Deputy Minister Denis Kudin is quoted in a press release from the department.
According to him, those industries where remote work is impossible, in particular, aviation, maritime transportation, and the service sector, where businesses work directly with consumers, have suffered the most.
At the same time, Kudin pointed out that over the past 10 days, the economy as a whole has begun to recover, business in safe regions is returning to work, and farmers have begun sowing.
The Ministry of Economy noted that in the process of restoring the Ukrainian economy, special attention will be paid to supporting industries that directly ensure the livelihoods of citizens and strengthen the state’s defense capability. “We are talking about agriculture, food production, retail trade, utilities and energy services, industries working on mobilization orders,” the ministry said.
As reported, the Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva predicted on March 22 that the decline in Ukraine’s GDP due to the war started by Russia could be a third of the pre-war level.
Prime Minister Denys Shmygal at the end of March gave a forecast of a 35% decline and “slightly higher.”
According to the State Statistics Service, in 2021, Ukraine’s GDP grew by 3.4% after a decline of 3.8% in 2020, its nominal volume amounted to about $200 billion.
Analysts from Morgan Stanley have maintained an estimate of Ukraine’s GDP growth in 2021 at 3.4%, and 4.2% in 2022, according to the forecast materials available to the Interfax-Ukraine agency.
According to the forecast, inflation in Ukraine will decrease to 9.5% by the end of 2021 and to 5.7% by the end of 2022.
Morgan Stanley experts also forecast a current account deficit of 0.5% of GDP in 2021 and 2.5% in 2022.
They expect that the International Monetary Fund’s Stand-By Arrangement is likely to be extended by six months – until the end of June 2022.
Ukraine’s real gross domestic product (GDP) in the second quarter of 2021 grew by 5.4% compared to the second quarter of 2020, while falling by 2.2% in the first quarter of this year, the State Statistics Service published a preliminary estimate in Monday.
According to the authority, in comparison with the previous quarter (taking into account the seasonal factor), the GDP decreased 0.8%.
