NBU forecasting 37.5% GDP reduction in Q3, Q4, decline of 33.4% in 2022 as whole
MOSCOW. July 29 (Interfax) - Ukraine's GDP decline in Q3 and Q4 2022 will slow to 37.5% from 39.3% in Q2, according to a National Bank of Ukraine (NBU) forecast published on the regulators website.
According to the forecast, in Q1 2023, the economy will shrink by a further 19%, given the base of Q1 2022, when the decline was 15.1%.
From Q2 of next year, according to the NBU, recovery will begin. In particular, Ukraine's GDP will grow by 17.5% in Q2 2023, by 13.2% in Q3 and by 12.3% in Q4.
In general, the NBU predicts a GDP decline of 33.4% in 2022, 5.5% growth in 2023 and 4.9% growth in 2024.
Nominal GDP, according to the document, may decline to UAH 4.54 trillion this year from UAH 5.46 trillion last year. However, due to high inflation (31% this year, 20.7% next year and 9.4% in 2024), nominal GDP will reach UAH 5.99 trillion as soon as 2023, and UAH 7.1 trillion in 2024, the National Bank said.
"The NBU based its forecast on the assumption that Ukraine's Black Sea ports will fully recommence operations from the beginning of 2023. Overall, security risks are expected to subside markedly in 2023-2024. Nevertheless, they will remain important, making the domestic and foreign investors reluctant to invest," the regulator said.
This baseline moderately optimistic forecast also assumes the continuation of active international financial support for Ukraine in the amount of $13 billion each in 2023 and 2024, compared to $26.8 billion this year (so far about $13 billion has been received). In particular, a new program with the IMF is expected to be successfully implemented in 2023-2024, the possible volume of which NBU head Kyrylo Shevchenko estimated at $20 billion in a recent interview.
"The NBU's and the Ukrainian government's policies will be gradually normalized. The NBU will return to the usual principles of inflation targeting with a floating exchange rate, while gradually discontinuing the practice of the budget's monetary financing," the regulator said with respect to other elements of the baseline scenario.
The government will return to borrowing from the market to cover the budget deficit by ensuring proper yields, while also conducting a fiscal consolidation policy and narrowing quasi-fiscal imbalances.
"In particular, this scenario factors in mobilization of additional revenues, support for domestic producers through additional taxation of imports and bringing utility rates closer to market levels (in 2023 - to 50%, in 2024 - to 100%)," the NBU said in materials.