Ukrainian analysts divided over possible review of NBU's macro forecast

MOSCOW. July 25 (Interfax) - The National Bank of Ukraine (NBU) may both upgrade the current economic growth forecast in 2024 by 3%, given its unexpectedly high assessment by the State Statistics Service for Q1, and slightly downgrade it taking into account the energy supply crisis, analysts polled by Ukrainian media said.

"Given that the Ukrainian State Statistics Service revealed a significantly higher estimate of real GDP for Q1 2024 (6.5%), the NBU may improve its annual forecast for 2024," head of the analytical department of the Concorde Capital investment company Alexander Parashchy said.

At the same time, his counterpart, head of ICU's macroeconomic research department Vitaly Vavrishchuk admits worse GDP forecast by about 0.3 p.p. to 2.7%.

"The NBU forecast now explicitly assumes a very sharp slowing of economic growth in the second half of the year, and this is natural. But until there is more clarity on the prospects of overcoming electricity shortage in the cold months, the NBU will not adjust the GDP forecast drastically. Data on the condition of the energy system before the winter may already greatly affect the assessment of GDP dynamics during the October forecast," Vavrishchuk said.

In terms of inflation, the National Bank will have to take into account the recent revision of the electricity tariff, as well as the possible effects of tax innovations, Parashchy said. "Therefore, the forecast for consumer prices may now be higher," he said. He said that the forecast could be downgraded by 0.5 p.p. to 8.7%.

At the same time, Vavrishchuk said that the NBU will keep the current inflation forecast for this year at 8.2%. Although most of the new indications in recent months show a stronger inflationary pressure, but the NBU's inflation forecast for the end of June turned out to be too conservative, he said.

"The current inflation forecast as of the end of September (8.4% year-on-year) also looks quite pessimistic. Therefore, it is very likely that the NBU will leave the year-end inflation forecast unchanged (8.2%), but will revise the inflation outlook during the second half of the year," Vavrishchuk said.

In turn, senior economist of the Center for Economic Strategy (CES) Vladimir Landa said that the accelerated growth of consumer prices in June could have affected the increase in inflation expectations at the end of the year.

"On the other hand, the recent agreement with creditors to postpone payments on foreign debt has eased the pressure on the national currency. In addition, there is a seasonal slowdown in consumer inflation ahead of us [...]. This will allow the consumer inflation to generally remain in line with previous expectations, at the same time, there may be a moderate additional inflationary pressure due to the negative impact of a hot summer amid electricity shortage," Landa said.

With regard to GDP dynamics, Landa named the main factors for reassessing the forecast expectations for the duration of the active phase of the crisis, the condition of the energy system and mobilization.

As reported, the Economy Ministry estimated Ukraine's GDP growth in June 2024 at around 1.1% year-on-year, which is lower than the May and April figures of 3.7% and 4.3%, respectively. As a result, the growth slowed to 4.1% in the past six months from 4.3% in the five-month period. At the same time, the Economy Ministry maintains its year-end GDP forecast at 3.5%.

On April 25, the NBU downgraded its GDP growth forecast for this year from 3.6% to 3% after 5.3% last year. NBU Deputy Governor Sergei Nikolaichuk said in late June that downward risks to this forecast prevail, but at that time the forecast remained in effect, including taking into account the factors that partially offset downward risks.

CES in late June released an updated consensus forecast of seven investment companies and think tanks, according to which the GDP growth estimate in 2024 was downgraded from 3.8% to around 3.5%, while the inflation forecast was upgraded from 10% to around 7.4%.

The consumer price growth in Ukraine accelerated to 2.2% in June 2024 from 0.6% in May, while year-on-year inflation rose to 4.8% in June from 3.3% in May, the State Statistics Service said.