EBRD revises downward its 2022 Ukraine economy forecast, but says GDP growth might bounce back to 25% in 2023

KYIV. May 11 (Interfax-Ukraine) - Ukraine GDP will contract by 30% in 2022, but GDP growth in Ukraine is expected to bounce back to 25% next year, according to the updated forecast published on Tuesday by the European Bank for Reconstruction and Development (EBRD), which said in March that Ukraine's GDP might decrease 20% in 2022, but might grow 23% in 2023.

"Ukraine's GDP will suffer negative growth of 30 per cent in 2022. GDP growth in Ukraine is forecast to bounce back to 25 per cent next year but this assumes that substantial reconstruction work is by then already underway," the EBRD said.

The EBRD's updated forecast indicates that, should it become a reality, Ukraine's GDP will be 12.5% lower at the end of 2023 than it was at the beginning of 2022, whereas the EBRD's March forecast put its contraction over these two years at a mere 1.6%.

According to the EBRD's estimates, between 30% and 50% of businesses have stopped their operations completely, causing about half of all employees to lose their jobs and income. Approximately 10% of the population has fled Ukraine and an additional 15% are displaced within the country, it said.

"All this is severely weakening companies' finances, thus exposing the banking sector to a drastic deterioration of asset quality," it said.

Huge production and logistical disruptions have caused inflation to rise 13.7% year-on-year in March 2022, and it is likely that inflationary pressures will persist throughout the year, the EBRD said.

Plummeting tax revenues, combined with government spending way above the budget, have opened a fiscal gap of at least $5 billion a month, the EBRD said. Yet, military bonds purchased by domestic banks and monetary financing of fiscal deficit by the National Bank of Ukraine allowed under martial law could plug only a small portion of the gap, it said.

"In March, the external gap was largely covered by IFI lending, but more sustainable financing predominantly based on grants is needed," it said.

The World Bank, which before February 24 projected Ukrainian economy growth at 3.2% in 2022, now expects Ukraine's economy to shrink by 45.1% in 2022. According to the World Bank's report, published in early April, Ukrainian economic growth is expected to bounce back only 2.1% in 2023, down from the previous projections of 3.5%.

The National Bank of Ukraine, in turn, expects the country's GDP to contract by at least one-third in 2022, but declines to provide further details. The International Monetary Fund, for its part, projects a 35% decline of Ukraine's GDP in 2022. It has not offered any other forecasts for a later period, either.