Page 5 - UKRRptDec21

1.0 Executive summary
Ukraine’s economy slowed in the third quarter as the bounce back effects wear off and the lack of progress with the reform agenda weighs again on the economy.
The economy is still expanding but it is growing well below potential. Third quarter growth was 2.4% compared with 5.7% growth in the third quarter of 2020. According to its data, in comparison to the previous quarter (seasonally adjusted), GDP increased by 1.4%.
Nevertheless the economy is worth more than ever before and will end 2021 by recording the highest dollar GDP since independence. The Minister of Economy, Yulia Sviridenko, announced that the economy will reach its highest rate of GDP in US dollars ($195bn) by the end of 2021. "Next year, we plan to reach a high growth rate of GDP due to the launch of several programs such as mass thermal modernization of residential buildings, comprehensive restoration of irrigation systems in southern Ukraine, mass cheap mortgage lending, active financing of exporters," said Sviridenko.
Analysts are less optimistic. J.P. Morgan downgraded Ukraine’s 2021 GDP growth forecast from 4.5% to 2.3% from an earlier forecast of 4.5% after Ukraine’s economy failed to meet macroeconomic benchmarks. The bank maintained its forecast for GDP growth of 5% in 2022.
The major drag on growth is the surging inflation which was 10.9% in October, but off its recent high of 11%. It seems a string of rate hikes by the National Bank of Ukraine (NBU) are having an effect, and J.P. Morgan expects overall inflation in Ukraine to be at 9.4% in 2021 and 8.3% in 2022. But that is still a lot higher than the all time lows of under 2% the country enjoyed prior to the coronacrisis.
One of the things holding the economy is up is rising incomes and here Ukraine is rapidly closing the gap with Russia where income growth has stagnated. Average incomes were up to $533 per month in October – more than a $100 increase in the last three years. That is feeding through into things like car purchases which are rising, although Ukrainians are still buying mostly second hand cars imported from places like German as income levels remain low, but progress is visible.
And part of the current growth is masked as the level of the shadow economy in Ukraine has exceeded 30% of all economic activity. The level of the shadow economy in 2020 was the same 30%, which was 3% more than in 2019 (27%).
The major event of November was Kyiv finally got the International Monetary Fund (IMF) to sign off on restarting the Stand By Agreement (SBA) and released the long awaited $700mn tranche of the $5bn deal. Moreover the IMF extended the programme, that was due to expire in December, for another six months so that Kyiv can probably claim the remaining $2.2bn sometime early next year.
5 UKRAINE Country Report December 2021 www.intellinews.com