12 Apr 2024 10:38

World Bank sees Ukrainian GDP growth slowing to 3.2% in 2024, inflation accelerating to 9.5%

MOSCOW. April 12 (Interfax) - Ukraine's GDP growth will slow to 3.2% in 2024 from 5.3% in 2023, primarily due to a smaller harvest and persistent labor shortage, the World Bank confirmed its earlier forecast.

Ukraine's "economic outlook remains conditional on donor support" and the duration of the conflict in the country, Ukrainian media reported, citing the World Bank's economic update for Europe and Central Asia published on Thursday.

"According to recent estimates by the World Bank and partner institutions, the cost of reconstruction and recovery in Ukraine has grown to $486 billion," which is more than twice the size of Ukraine's economy in 2021, the bank said.

The World Bank also confirmed its forecast that Ukraine's GDP growth will accelerate to 6.5% in 2025. Its indicative scenario assumes that the conflict with Russia will continue throughout 2024.

Macroeconomic risks due to uncertainty about the timing and amount of external aid continue to grow and might require adjustments to economic policy, the bank said.

Household incomes increased in line with economic growth, but household sentiments remain gloomy, with most people reporting financially worse conditions compared to 2021.

Ukraine's economy continues to operate as a war economy that spent almost 50% of its 2023 budget on defense, the bank said.

"Private demand remains subdued by a restrictive monetary policy, designed to rein in inflationary pressure resulting from continued supply disruptions and high demand from the public sector, whereas the public sector absorbs most scarce domestic resources and external aid to finance its large deficit," the report said.

Ukraine's "economic management has reached an inflection point," the bank said, noting that "concerns about the timing and amount of future aid disbursements are increasing."

After receiving $42.5 billion of external aid in 2023, Ukraine's 2024 budget plans to receive $37.3 billion of external financing, the timely receipt of which will be critical to enable the authorities to maintain macroeconomic stability and finance critical expenditure, including for social assistance, the bank said.

The bank said that key priorities include restoring livelihoods through integration of displaced populations and ex-combatants into labor markets, ensuring continued social service delivery, and supporting households to recover from property damages.

The World Bank also forecast that inflation in Ukraine will accelerate to 9.5% in 2024 from 5.1% in 2023.

The current account deficit is expected to widen to 7.8% of GDP this year from 5.4% last year and the state debt is forecast to grow to 96.3% of GDP from 86.8%, while net foreign direct investment is expected to drop to 0.8% of GDP from 2.4%.

The public and publicly guaranteed debt is projected to stabilize around 98% of GDP in the medium term.

However, this scenario "is subject to significant downside risks," the bank warned. "Should downside risks materialize, a more stringent macroeconomic adjustment could become necessary. That adjustment could affect social spending and transfers to households that most of the poor have come to depend on, which could push many of them deeper into poverty," the report said.