Page 7 - UKRRptJun19

The World Bank maintained its forecast for GDP growth in Ukraine in 2019 at 2.7%, with the European Bank for Reconstruction and Development forecasting GDP growth will slow to 2.5%.
Private household demand will continue to be the key growth driver,
although its contribution will decrease. After robust salary hikes in response to emigration pressures, wage growth is sure to decelerate.
Fresh growth could come from external demand and investments. The former is unlikely to materialize soon – the global economy and Ukraine’s key trading partners are not in a high-rate growth cycle. The longer-term prospects for Ukrainian exports are undercut by its still-weak competitive position.
Investments could be a growth factor if the new president’s team finds a way to improve business and investor sentiment domestically and internationally. An ambitious and plausible plan to attract international funding into infrastructural projects, re-launch privatization in a transparent way, and ensure independence and accountability within the judicial branch would produce tangible results within two years. That may unlock additional potential and visibly accelerate economic growth starting in 2H20.
Deflation continues despite a temporary bump in headline inflation
Headline inflation picked up to 8.8% yoy in April from 8.6% in March, ending a 4-month downtrend.
The NBU has embarked on an easing cycle for monetary policy by lowering its key policy rate by 50 bps to 17.5% in late April, cutting for the first time in two years. The NBU’s communication was cautious, and some risks that could disrupt the cycle in the coming months are lurking. Looking through to the year-end, the central bank’s decisions will largely depend on how firmly inflationary expectations are anchored with businesses and households.
Ukraine is due two more IMF tranches this year of $1.3bn each, but the next one will not be paid until after the elections are over and probably not until September. However, there are prospects for a new deal where Ukraine goes back to the longer term Extended Fund Facility (EFF) from its current more restrictive Stand by agreement (SBA) and collects both payments due this year in one go in the autumn.
7 UKRAINE Country Report June 2019 www.intellinews.com