Page 15 - UKRRptSept18

In July, the National Bank of Ukraine (NBU) has revised the nation's 2019 GDP growth forecast to 2.5% y/y (vs 2.9% y/y in the previous forecast).
The NBU believes that the forecast of 2018 real GDP growth of 3.4% y/y is still relevant. "Economic growth will continue to be mainly driven by private consumption, which in the current year will be fuelled by the persisting high rate of growth in real wages on the back of high migration," the statement reads. "Favourable terms of trade, a recovery in the industrial sector, together with greater access of Ukrainian exporters to foreign markets, will decrease the negative contribution of net exports to GDP."
However, in 2019, real GDP growth will stand at 2.5% y/y due to the waning effects of higher social standards, the tight monetary conditions required to bring inflation back to its target, as well as tight fiscal policy resulting from the need to repay large volumes of public debt.
In 2020, the real economy is expected to grow by 2.9% y/y. "Private consumption, additionally supported by rising remittances thanks to an increase in the number of labour migrants, will remain the main driver of economic growth in the medium-term," the NBU believes.
Meanwhile, investment growth will be restrained by businesses’ higher labour costs. However, the contribution of net exports will remain negative over the forecast horizon, as imports will satisfy a significant portion of domestic demand and capital investment needs, according to the regulator.
A key assumption of the above scenario is based on Ukraine continuing to carry out structural reforms, as provisioned in a $17.5bn support programme agreed with the International Monetary Fund (IMF) in 2015.
"These reforms are essential to delivering macro financial stability and sustainable economic growth in the long-term," the NBU believes. "Access to the official financing provided by the IMF and other international lenders will enable the government to secure financing on the international capital markets on reasonable terms."
The International Monetary Fund (IMF) retained its forecast for GDP growth in Ukraine in 2018 at 3.2% y/y, while at the same time it lowered the forecast for 2019 to 3.3% y/y from 4% y/y.
The size of Ukraine’s shadow economy has fallen to an estimated 33% of GDP in January-March , which is 4 percentage points (pp) less compared to the same period in 2017, according to estimates of the nation's Economy Ministry. The result was attributed to improving macroeconomic stability, positive economic trends and increasing domestic demand, as well as the strengthening of the investment component of economic growth and continuation of the economic reform, Interfax news agency reported on August 23. The level of shadow economy has traditionally been measured by looking at "public expenditures-retail turnover" which gives an estimate of the shadow economy accounting for 48% of GDP, although this is 5 pp less than the figure for the same period last year. The positive dynamics is restrained by such outstanding problems as the continuing significant challenges to the stability of the financial system in the country and the presence of uncontrolled territories, the ministry believes. Ukraine's shadow economy decreased to 34% of GDP in
15 UKRAINE Country Report September 2018 www.intellinews.com