Page 19 - UKRRptSept20

The trade deficit will swell from $10.4bn in 2021 to $13.6bn in 2022​ and $17.0bn in 2023. The average exchange rate in 2021 is expected at UAH29.1/$and UAH28.8/$at the year end.
Real wages are projected to grow 12.1% y/y in 2021​, 6.0% y/y in 2022 and 5.1% y/y in 2023.
The forecast assumes quite a quick economic turnaround in 2021 and implies that all the negatives related to the coronavirus pandemic are to be left behind in 2020. At the same time, the same growth rate in 2021-2023 shows that the current government has no ambitions for an economic breakthrough, as had been promised by President Zelensky at the beginning of his tenure.
In particular, the forecast assumes quite moderate growth of exports, which doesn’t correspond to the recent efforts of the Zelensky administration to improve the protection of domestic producers (particularly, exporters). Moreover, the relatively high and stable growth rate of imports in the forecast implies that these efforts to foster domestic producers will hardly result in import substitution, even in the mid-term. As a result, the trade deficit will set a new record in 2023, according to the forecast.
The projected accelerated inflation is another point of concern, as the cabinet is expecting it will exceed the NBU’s mid-term inflation target range of 4%-6%. This discrepancy deserves attention and we don’t rule out that the NBU might be forced either to raise its target inflation rate or to give up altogether its policy of inflation-targeting, which was introduced in 2015. In either case, this will violate the NBU’s status as an independent institution.
4.0​ Real Economy 4.1​ Industrial production
The decline of Ukraine's industrial output slowed to 4.8% y/y in July ​from a 5.6% y/y drop in June, the State Statistics Service reported on Aug 25. Seasonally adjusted output increased 1.4% m/m. In 7M20, industrial output dropped 7.7% y/y.
Manufacturing output fell 6.6% y/y in July (after a 6.2% y/y decline in June). In particular, metallurgy output plummeted 10.6% y/y (vs. a 3.9% y/y drop in June). Machinery production declined 21.3% y/y (after a 22.5% y/y fall in June).
Meanwhile, food production accelerated to 4.6% growth y/y (from 0.8% y/y growth in June), chemical production surged 13.2% y/y (after 1.1% y/y growth in June).
Mining output fell 0.7% y/y in July, after declining 4.9% y/y June. In particular, iron ore production dropped 5.1% y/y, while coal production increased 4.7% y/y, oil and gas production inched up 0.7% y/y. The supply of electricity and natural gas decreased 0.7% y/y after a 4.0% y/y decrease in June.
Regionally, the steepest declines were observed in Ukraine-controlled Luhansk (-37.8% y/y), Ternopil (-22.4% y/y) and Odesa (-21.6% y/y) regions. Industrial output grew the most in Chernivtsi (10.3% y/y), Khmelnytsky (8.8% y/y) and Sumy (6.0% y/y) regions.
19​ UKRAINE Country Report​ September 2020 ​ ​www.intellinews.com