Real GDP in Ukraine in 2019 would grow by 3.2% under the influence of higher internal demand (both consumer and investment) than it had been projected, according to the updated Dragon Capital’s forecast. Earlier Dragon Capital assessed growth of the Ukrainian economy this year at 2.5%.
According to the forecast, the external environment in the first half of the year was better for Ukraine than expected, in particular, because of the sharp favorable change in prices for iron ore and gas.
Despite the fact that in the second half of the year, Dragon Capital expects deterioration in trade, the updated annualized forecasts are still better than they were.
The estimate of the increase in real GDP in 2020 remained the same – 2.8%, since the positive impact of higher demand will be offset by a reduction in the transit of Russian gas, Dragon Capital said in the document. Half a year ago, analysts at Dragon Capital were expecting a 20% drop in transit, but now they predict a 50% fall.
The authors of the report reminded that on January 1, 2020, the 10-year transit contract between Naftogaz Ukrainy and Russia’s Gazprom will expire. The latter is strenuously promoting the Nord Stream 2 and Turkish Stream, the alternative projects to the Ukrainian transit, while the trilateral meetings on the transit issue involving Ukraine, the European Union (EU) and Russia have so far been fruitless.
The analysts said that they revised their forecast on expectations that Ukraine will sign a new extended fund facility with the International Monetary Fund (IMF) in the fourth quarter of 2019 for $6-8 billion after the formation of a new government following the parliamentary elections to be held on July 21.
“Although the current government is successfully coping with growing payments on foreign debt, we still believe that the need for fiscal financing will remain high in the coming year, supporting Ukraine’s need to have a working program with the IMF,” the experts said.
In U.S. dollar terms, the nominal GDP forecast for the current year has been improved from $143 billion to $150 billion, for 2020 – from $148 billion to $161 billion.
Taking into account the unexpectedly strong dynamics of January-May 2019, the analysts at Dragon Capital also significantly improved the forecast for the current account deficit – by 1 percentage point (p.p.), to 2.7% of GDP ($4 billion), explaining this by slower repatriation of dividends and such an improvement in terms of trade, which compensates for the increase in consumer and investment imports.
According to the updated macroeconomic forecast, the current account deficit in 2020 will increase to 3.2% of GDP ($5.1 billion) due to less favorable terms of trade and reduction in gas transit, which, however, is noticeably better than the previous estimate of 3.9%.
As for the hryvnia exchange rate, the investment company experts point to the absence of risks associated with fundamental factors. According to their estimates, the exchange rate will increasingly depend on the mood. In particular, they noted a sharp increase in the inflow of nonresidents (a rise of $1.8 billion) in the first half of 2019. The Dragon Capital analysts said that a further inflow of foreign investors will support the hryvnia in the second half of 2019, reducing the influence of the seasonality factor.
In the updated forecast, the hryvnia rate at the end of 2019 has been improved to UAH 27.50/$1 from UAH 29.70/$ 1 (a rise of 0.7% year-over-year), and at the end of 2020 – UAH 28.50/$1 from UAH 31/$1. The expected weakening next year Dragon Capital explains, first of all, by a decrease in gas transit income and a smaller inflow of foreign investment in hryvnia-pegged government securities.
As for inflation, its forecast for this year is worsened from 7.3% to 7.8% compared with 6.3%, so far expected by the National Bank. However, in 2020, as expected in Dragon Capital, inflation will drop to 6%, which is better than the company’s previous forecast of 6.2%.
The analysts said that the National Bank will resume the easing policy and will lower the key policy rate by 150 basis points this year and 500 basis points in 2020, to a total of up to 11.0% per annum.
Dragon Capital said that the main risk for the forecast is the absence or longer delay of the IMF program, on the other hand, pointing to additional growth potential in the event of a possible acceleration of structural reforms.
According to the analysts of the company, relations with Russia are still an important factor in influencing the macroeconomic situation in Ukraine, as well as the country’s dependence on global commodity prices and the situation in the international loan market.
The European Commission (EC) is preparing an international project of assistance to Ukraine in the amount of EUR 25 million for the development of the digital economy and e-government. The issues were discussed at a meeting of representatives of the EC with advisor to the President of Ukraine Mykhailo Fedorov in Kyiv on Wednesday.
“During the meeting, representatives of the European Commission reported on the preparation of an international project to assist Ukraine in the amount of EUR 25 million for the development of the digital economy and e-government, and also provided their recommendations for the “State in the Smartphone” concept. Key proposals related to the development of citizen identification, the introduction of an effective structure for managing… the implementation of ambitious tasks,” the press service of Ukrainian President Volodymyr Zelensky said.
In turn, Fedorov told about plans and prospects: “For us, we have very clear plans for the year and key performance indicators until 2024. The “State in the Smartphone” for me is when a Ukrainian can solve any life or business situation online in one click and preferably from a smartphone, when our citizen will forever forget what an official looks like and where he is, when Ukrainians will be able to actively participate in the development of the state through a smartphone.”
First Deputy Head of the State e-Government Agency Oleksiy Vyskub told EC representatives about the eBaby project, through which parents of newborns will be able to get 10 online services.
According to the press service, representative of the Support Group for Ukraine (SGUA) in the European Commission Frank Paul, representative of the Delegation of the European Union in Ukraine Martin Klaucke and Coordinator of the Public Administration Reform Sector of the EU Delegation in Ukraine Serhiy Ladny took part in the meeting at the president’s office.
Ukrzaliznytsia jointly with Belarusian and Lithuanian railways has launched the Containerships Train new regular container train running across Lithuania, Belarus and Ukraine.
Ukrzaliznytsia Board Chairman Yevhen Kravtsov wrote on his Facebook page that the train will run between Draugyste (Lithuania) and Brovary (Ukraine) twice a week.
“Last year can be called a “container boom” in Ukrzaliznytsia. The Containerships Train is our 22nd container train running in Ukraine. Competitive delivery speed regardless of weather conditions, regular trips, the understandable schedule. Add to this the decrease in logistics costs on average by 25%. The benefits are undeniable,” he said.
The head of Ukrzaliznytsia said that as part of the first Containerships Train with 65 containers will arrive at the Brovary station in 50 hours. The company plans to organize container transportation to the Odesa seaport.
“Draugyste is located near the port of Klaipeda. So this autumn we are planning another route – to the Odesa seaport. Considering the reorientation of domestic exports to the EU countries and the increase in cargoes addressed to seaports, container shipping will be useful,” Kravtsov said.
Ukraine is ready for negotiations with the European Union to strengthen trade in 2020 and implement new opportunities, Prime Minister of Ukraine Volodymyr Groysman has reported.
“Today, we sell 43% of exports to the EU market. We have free trade area agreements. In 2018 we revised and increased the quotas (for export). There will be an opportunity to revise trade conditions in 2020 and we are working to expand the volume and “horizon” of trade. Every citizen will benefit from this. This is my priority,” Groysman said on the air of the Svoboda Slova program on ICTV.
The international reserves of Ukraine in June 2019, according to preliminary data, increased by 6.4%, to $20.639 billion in equivalent due to the placement of eurobonds by the government and the purchase of currency by the National Bank of Ukraine (NBU) in the interbank market, the NBU said on its website.
Minister of Internal Affairs of Ukraine Arsen Avakov has met with Minister of National Defense of Canada Harjit Sajjan to discuss the issue of military cooperation between the countries, as well as the purchase of new technology, the press service of the Ministry of Internal Affairs reported. “The interaction of the Armed Forces of Ukraine, the National Guard of Ukraine with the Canadian armed forces and the purchase of new equipment were discussed with the Minister of Defense of Canada,” Avakov said at the 3rd International Ukraine Reform Conference in Ukraine in Toronto.
The parties also discussed security issues in Ukraine, in particular, during the extraordinary parliamentary elections on July 21.
“Today, the issue of security is not only a question of the boundary line of the conflict or the contact line. This is the issue of security in society, the mood of people. Therefore, the mechanism of democratic elections that we now provide is a key component of security,” Avakov said.