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.
ICU Investment Group has improved its forecast for the fall of Ukraine’s gross domestic product (GDP) to 5% from 5.7%, head of the group’s macroeconomic research department Serhiy Nikolaichuk has said.
“In total, the economy will contract by about 5% in 2020 (compared to 5.7% in our September forecast). This will lead to a decrease in GDP below the level of 2018, but compared to most other countries, the Ukrainian economy will demonstrate better dynamics,” he wrote on Facebook.
According to the investment group, GDP growth in Ukraine in the fourth quarter of this year and in the first quarter of the next (to the previous quarters) will be “slow and rather shaky.”
“However, the pace will still be positive,” the expert specified.
He also noted that the impetus from the “opening of the economy” after tough quarantine restrictions, which affected the decline in GDP fall in the previous quarters, has exhausted, so further growth will require other drivers.
“The new outbreak of COVID-19 continues to gain momentum, indicating that the recently introduced weekend quarantine could be replaced with tougher measures across the country,” Nikolaichuk added.
At the same time, he noted that against the background of the return of income to the “pre-epidemic trajectory,” active growth of private consumption continues, and the weakness of private investment is compensated by the ongoing projects of Big Construction.
Nikolaichuk added that ICU expects a significant fiscal impulse for the economy at the end of 2020, despite the fact that it will be lower than provided for in the law on the national budget.
The World Bank has affirmed the forecast for growth of Ukraine’s GDP at 2.7% in 2019, World Bank Country Director for Belarus, Moldova and Ukraine Satu Kahkonen has said.
In 2018, GDP growth was 3.3%, in 2019, the growth would slow down, she said at a press conference in Kyiv on Thursday.
