Macroeconomic forecast: Ukraine’s GDP real growth forecast for 2020 improved to 3.2%

News 14 february 2020 - 10:00

This release contains macroeconomic forecast for 2020 under the base case (most probable) scenario developed by the Research Department of Alfa-Bank Ukraine.

Key points

  • Economic growth forecast for 2020 improved to 3.2%
  • Throughout most of the year, inflation is expected to remain below target range, fueling further rate cuts by the NBU
  • Lower interest rates should support credit expansion
  • In 2021, the economy might accelerate to 3.8%

Detailed

We have improved our real GDP growth forecast for 2020 from 3% to 3.2%. According to our expectations, the economy would expand with moderate rates of 2.3-2.5% during the first three quarters of 2020.

Ukraine’s GDP in 2016-2020, % real change y-o-y

Sources: State Statistics Service, forecast by Alfa-Bank Ukraine

At the same time, we see prospects for economic growth accelerating in the fourth quarter of 2020 to more than 4% due to expected thrust in bank lending, which would provide additional impetus for domestic demand. Low baseline effect would be another major reason behind economic growth acceleration at the end of 2020, as the last quarter of the previous year was associated with local slump in industrial and agricultural output.

Low inflation would be one of the key features of 2020. According to our forecast, average annual growth in Consumer Price Index (CPI) would turn just 3.4% this year, after 7.9% in 2019. Only by the end of 2020, inflation would return to the target range set by the National Bank of Ukraine (4-6%), as a result of monetary easing and some recovery in producer prices.

Consumer Price Index (CPI) in 2017-2020, % annual change

Sources: State Statistics Service, forecast by Alfa-Bank Ukraine

Low inflation should allow the NBU to continue cutting its rate fast. We share the recently updated central bank’s expectation of its prime rate at 7% by end 2020. However, we do not exclude that prolonged inflation below target range in 2020 would request for an even more accommodative monetary policy.

Lower interest rates amid ample banking sector liquidity would prompt credit expansion, contributing to additional impetus for economic growth over time. In particular, our base-case medium-term macro scenario implies acceleration of economic growth to 3.8% in 2021.

Due to faster pace of domestic market recovery and changes in Ukraine’s exports breakdown over last years, and also due to conservative monetary and fiscal policy, the economy has become less exposed to possible external shocks. In the medium-term, however, attention should be paid to potential setbacks in fiscal discipline, as the State Budget revenues have been systemically underperformed (also due to lower inflation, among other reasons). In this context, any initiatives to increase fiscal spending, including those aimed at economic stimulus, should be in line with the priority of maintaining fiscal balance.

Key macroeconomic indicators


2017

2018

2019e

2020f

GDP, UAH bln

2984

3559

3970

4335

GDP, USD bln

112,2

130,8

153,6

176,2

GDP, % real change

2,5

3,3

3,3

3,2

CPI, % average annual change

14,4

10,9

7,9

3,4

CPI, % change Dec-to-Dec

13,7

9,8

4,1

6,3

Average wage, UAH ‘000

7,1

8,9

10,5

11,9

Average wage, % real change

19,1

12,5

9,8

9,4

Consolidated Budget balance, % of GDP

-1,4

-1,9

-2,1

-2,2

Public debt, % of GDP

71,8

60,9

50,3

49,8

Current account balance, % of GDP

-2,2

-3,3

-0,7

-2,8

USD/UAH, average annual

26,60

27,20

25,85

24,60

Sources: State Statistics Service, NBU, Ministry of Finance, forecast by Alfa-Bank Ukraine