Ukraine's GDP to grow by 4.2% in 2021 – forecast

REUTERS

REUTERS

The Center of Macroeconomic Modeling at Kyiv School of Economics (KSE) says Ukraine's gross domestic product (GDP) in 2021 may grow by 4.2% due to the recovery of external export-facilitating demand and intensified personal consumption.

That figure is given in a consensus forecast of the Center based on data from the National Bank of Ukraine (NBU) and major investment companies.

Read also Ukraine sees acceleration of inflation in Jan

"The estimated decline in real GDP in 2020 is 4.9%. GDP will grow by 4.2% in 2021. The recovery in external demand will facilitate exports, while fiscal and monetary incentives will boost personal consumption," the document said.

The active vaccination campaign in recent weeks has improved optimism in commodity markets, which has been reflected in the growth of relevant quotations. In particular, the rise in energy prices continued, which became a key factor in revising outlooks for Ukraine (by the NBU and investment companies).

Projections for price hikes in Ukraine

In particular, inflation in 2021 (in annual terms) is expected at 6.5%, with increased social standards and growing energy prices being key risks.

The hryvnia's average forex rate against the U.S. dollar may be UAH 27.00 and UAH 28.70 in 2020 and 2021, respectively. The expected revaluation in the first half of 2021 against the background of an improving balance of payments will be replaced by the hryvnia's devaluation in the second half of the year.

"The policy of monetary liberalization by the world's leading economies stimulates the growth in liquidity, increasing the possibility of capital inflows. In turn, the Finance Ministry's need for foreign currency and relatively high interest rates on government domestic loan bonds attract foreign investors. This factor and the best conditions for exports will contribute to a stronger hryvnia in the first half of 2021," the report said.

Forecast for Ukraine's international reserves

Also, Ukraine's international reserves are expected to grow from US$28.6 billion in 2020, to US$30.9 billion in 2021. The reserves may expand further if the country receives a disbursement from the International Monetary Fund.

The NBU's refinancing rate is projected to increase from 6% in 2020 to 7.3% late in 2021 due to the regulator's tougher monetary policy in response to spiraling inflation.

"An increase in social benefits and growth of energy prices are likely to be translated into a higher inflation target set by the NBU for 2021. Against the background of higher inflation, the projection for the NBU rate (at 7% in the second half of the year) means the liberalization of monetary policy, apparently introduced for further support for economic recovery," the document said.

Background

  • The Ministry for Development of Economy, Trade and Agriculture earlier said it forecast a 4.8% increase in Ukraine's gross domestic product in 2021.

Author: UNIAN

Unian

Read the top-news of politics in Ukraine and the world, the latest political news from the UNIAN news agency.

https://www.unian.info/

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