ICU worsens Ukraine GDP forecast for 2024 to 4.1%, improves inflation forecast to 6.4%
MOSCOW. April 27 (Interfax) - The Ukrainian investment group ICU has once again lowered its forecast of Ukraine's economic growth for 2024 to 4.1% from 5%, while at the same time improving its inflation forecast to 6.4% from 10.1%, Ukrainian media reported.
"The economy keeps growing at a satisfactory pace in 2024, and the massive damage caused to the energy infrastructure will only slow down recovery but won't stop it. Additional problems with power supply have prompted us to lower our GDP growth forecast this year to 4.1% from the previous level of 5.0%," Vitaly Vavrishchuk, head of the ICU's macroeconomic research department, said in explaining the reasons behind the group's decision to revise its forecast.
The ICU expects Ukraine's nominal GDP in 2024 to amount to $190 billion, down $9 billion from its December 2023 forecast.
The group sees the sharp slowdown in annual inflation to 3.2% in March year-on-year as a positive and at the same time unexpected trend in the first quarter of the year.
"We see that inflation will be 6.4% by the end of the year. Low inflation in combination with a stable foreign exchange market means that there's significant potential for lowering interest rates. We expect the NBU to review its refinancing rate to 11.5%-12% by the end of the year. The yield of government bonds should also respond and go under 14% on one-year bonds at the end of the year," Vavrishchuk said.
The ICU sees international financial aid as a key factor ensuring the country's macroeconomic stability.
"After the U.S. aid package approval, it could be expected that Ukraine will get the necessary resources enabling the NBU to increase its reserves and making it possible to completely negate any risks on the forex market," it said.
In particular, the ICU has improved its forecast of the NBU's foreign exchange reserves to $44.7 billion from $44.0 billion.
Among other positive trends, Vavrishchuk mentioned moderate and controllable devaluation of the national currency, which he sees as an essential measure to smooth out the effects of a foreign trade deficit.
"Taking into account the NBU's clear message that it's prepared for moderate controlled devaluation and higher exchange rate volatility, we have reviewed our exchange rate forecast for the end of the year to UAH 42.3/$1 compared to the previous forecast of UAH 40.7/$1," he said.
On the whole, the investment group has praised the government's reaction to fiscal risks in January and February, when international financial support coming to Ukraine was extremely low.
"Certain noncritical expenses were deferred. Significant growth in tax revenues also played a positive role," it said.
"The risk still remains that the actual state budget deficit this year will exceed the target of UAH 1.6 trillion. If this happens, the government will try to draw more financing primarily from the domestic market," Vavrishchuk said.