ICU downgrades Ukraine’s GDP growth forecast ‘No significant growth drivers on the horizon’

15 December 2021, 12:36 PM
In 2022 rising inflation will lead to lower real income growth, ICU experts predict (Photo:National Bank of Ukraine)

In 2022 rising inflation will lead to lower real income growth, ICU experts predict (Photo:National Bank of Ukraine)

Ukraine’s GDP growth will be sluggish in 2021, coming in at around 2.9 percent, Kyiv-based financial group Investment Capital Ukraine, or ICU, said in a presentation of its economic forecast for the country on Dec. 15.

The figure was a downward revision of ICU’s earlier forecast, which had been 5.2 percent.

 Meanwhile, ICU sees GDP growth in Ukraine in 2022 at 3.2 percent.

 “On the one hand, Ukraine’s economy has clearly become more stable, durable and solvent,” ICU Chief Economist Vitaly Vavrishuk said during the presentation. “On the other hand, we can see some troubling trends – rising inflation and a sharp decline in the growth rate.”

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 Vavrishuk alluded to the initial growth forecast for 2021 being much more optimistic, characterizing the economy as “healthier, but (moving) painfully slowly.”

 “Even worse, we’re looking to begin 2022 with a very slow economy, with stagnant growth rates,” Vavrishuk said. “I can’t see any growth factors that could significantly speed up our lethargic economy in the next two quarters. Without the impact of the extraordinarily bountiful harvest that our agriculture sector enjoyed this year, we’d be looking at an annual growth rate of below 2 percent for 2021. This is an astonishingly low figure – agriculture was clearly the only significant GDP growth factor. So we can’t really make any optimistic projections for the next year. We expect the economy to grow by 3.2 percent.”

 In 2022 rising inflation will lead to lower real income growth. In turn, that’s likely to put a damper on domestic demand – traditionally a key factor in economic growth.

 Despite record prices for Ukraine’s main exports, in real terms exports saw no growth in 2021.

 “Since our primary trading partners are entering a period of economic downturn, we can hardly expect any changes on that front in 2022,” Vavrishuk said.

 “However, we could see a surge in private sector investment, accompanied by large-scale infrastructure projects. That suggests we can expect investment demand to be the bedrock of our economic growth in the coming year.”

 Both supply and demand factors are contributing to the rising inflationary pressure. ICU expects the Ukraine’s key interest rate to remain at 9 percent until at least the end of the third quarter of next year.

 Ukraine’s GDP shrank by 4 percent in 2020, according to official data.

 The National Bank of Ukraine has also revised down its forecast for GDP growth for 2021, from 3.8 percent to 3.1 percent, and for 2022 from 4 percent to 3.8 percent. The downward revisions were due to the slower than expected post-COVID economic recovery, Ukraine’s central bank said.

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