29 Apr 2022 19:19

Ukrainian National Bank seeing gradual economic recovery following slump in March

KYIV. April 29 (Interfax-Ukraine) - The National Bank of Ukraine (NBU) has observed some adaptation and a gradual recovery of the national economy after its collapse within the first few weeks following February 24, NBU Monetary Policy and Economic Analysis Department Director Volodymyr Lepushynsky said.

"The economy is having hard times, but it's getting adapted and working," Lepushynsky said on Friday.

Among the principal processes signaling a recovery, Lepushynsky cited the fact that the number of businesses that have completely halted their operations has dropped from 17% to 32%, even though 60% of businesses have still not regained their pre-crisis volume of operations.

The NBU's surveys indicate that almost one-third of businesses are not experiencing any lack of resources now, and 48% have resources enabling them to operate for longer than one month. Hence, compared to March, the number of businesses that have exhausted their resources has declined, he said.

The steel industry is beginning to resume operations, the engineering sector is becoming more active, and the food industry is running at full capacity, Lepushynsky said.

The labor market is recovering, even though the number of those seeking jobs is growing faster than the number of vacancies, which prompts wages to go down, Lepushynsky said.

"What is important now is that the labor market is functioning and enables the business sector to adapt and find employees," he said.

The NBU will not publish an inflation report and macroeconomic outlook until the economic situation normalizes, he said.

To monitor the situation, the NBU has stepped up a search for and processing of alternative data, as the volume of official data has shrunk, he said.

The NBU expects GDP to lower at least by one-third in 2022, and the decline might be even more dramatic if the crisis persists, he said.

Among the reasons for the slump, Lepushynsky mentioned the destruction of critical infrastructural and manufacturing assets, real estate, and valuable movable property.

According to the NBU's latest estimates, physical capital losses have reached about $100 billion, or about half of Ukraine's GDP for 2021, it said.

Among other factors, Lepushynsky mentioned lacking domestic sources for replenishing this capital, although he admitted that the hopes for external sources are well justifiable.

Workforce is another factor, considering that, according to United Nations estimates, up to 5 million people have left the country, and the demand for workforce is likely to be low at the initial stage of the recovery due to disrupted ties and destroyed production and logistics assets, which would result in a high unemployment rate and put pressure on wages, he said.

"However, as the production capacity is restored and starts growing, the situation will change: the demand for workforce will increase and prompt wages to go up. Measures to encourage migrants to return to Ukraine, particularly through tax stimuli and retraining programs, should play an important role," he said.