Page 4 - UKRRptNov20
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1.0 Executive summary
Ukraine’s economic performance did better than expected over the first eight months of this year, but it still did very badly as it reels from the impact of the coronacrisis.
Ukraine’s real GDP dropped 5.8% y/y in 8M20, improving from a 6.2% y/y decline in 7M20, according to estimates published on October 12 by the Ministry of Economic Development.
The economy is being proper up by sectors that have largely been unaffected by the pandemic. While manufacturing and retail are in the front line, in August the decline slowed in sector like transportation, trade, construction and agriculture. In addition, the index of business expectations improved.
The International Monetary Fund (IMF) upgraded its 2020 forecast for Ukraine’s real GDP to a 7.2% y/y decline from an 8.2% y/y drop, according to its World Economic Outlook (WEO) published on October 13. In 2021-2025, Ukraine’s GDP growth will range from 3.0% to 4.0%, the IMF predicted.
The IMF updated its 2020 consumer inflation forecast to 5.2% YTD, compared to 7.7% YTD in April’s forecast. It expects consumer inflation to speed up to 5.8% YTD in 2021 and cool down to 5.0% YTD in 2023-2025.
Trade is one of the areas that is doing well as the country continues to diversify its trade regime and replace the lost business with Russia. The recovery of commodity prices like metals and grain have helped. The fall in the cost of oil and gas also been a boon.
The IMF expects Ukraine’s current account (C/A) to reach a $6.2bn surplus in 2020, but it will switch to a $4.5bn deficit in 2021. The C/A deficit will not exceed 4% of GDP during the forecast period of 2021-2025, according to the IMF.
The IMF's outlook implies that the average hryvnia exchange rate (derived by dividing GDP in UAH terms by GDP in dollar terms) will amount to UAH27.20/$ in 2020. In 2021-2025, the hryvnia average exchange rate will not exceed UAH28.10/$.
The unknown in these forecasts is the extend and severity of the new wave of the coronavirus (COVID-19) that is tearing through the country. As of the end of September the virus has reasserted itself and lead to new record high infection rates. The health system is in danger of collapsing again as more and more regions become red zones.
With the Covid-recession extending across Europe, Ukraine is suffering from economic contagion, the EBRD reports in its most recent regional report. The EBRD’s now predicts Ukraine’s GDP will shrink this year by 5.5%, a worse drop than the 4.5% the bank predicted in May.
The World Bank said that according to the negative scenario, Ukraine's GDP growth next year may be even lower – only 1%. The World Bank's analysts said that the government's initiative to increase minimum wages by 37% in
4 UKRAINE Country Report November 2020 www.intellinews.com
