National Bank of Ukraine eyes GDP decline to slow down to 19% in Q1, to grow 11.7% in Q2

MOSCOW. Feb 6 (Interfax) - Ukraine's real GDP decline in Q1 2023 will slow down to 19% from 35% in Q4 2022 and 30.8% in Q3 2022, the National Bank of Ukraine (NBU) said in a quarterly inflation report published on its website.

As reported by Ukrainian media, the NBU believes the national economy should start recovering and should grow by 11.7% in Q2 2023, considering the low base of Q2 2022, when the country's GDP dropped by 37.2%.

The NBU expects the GDP growth to slow down to 1.5% in Q3 2023 and to 8.2% in Q4 2023, while the real GDP is expected to grow by 0.3% in 2023 following a 30.3% decline in 2022.

The NBU's updated outlook is worse than the forecast released in October 2022, when the bank expected the country's economy to decline by 17.5% in Q1 2023 and to grow by 13.9% in Q2 2023, with the annual GDP growth by 4%.

The NBU also downgraded its GDP growth forecast for 2024 to 4.1% from 5.2%, and it expects the growth of the country's economy to speed up by 6.4% in 2025.

"The baseline scenario [...] is based on assumptions of entering a new IMF program, conducting coordinated monetary and fiscal policies, and gradually neutralizing quasi-fiscal imbalances, in particular in the energy sector. In addition, the baseline scenario assumes a significant decline in security risks from early 2024, which would contribute to complete unblocking of seaports, a decrease in sovereign risk premiums, and return of displaced persons to Ukraine," the bank said in the report.

It also envisions the government's successful efforts to draw international assistance for the energy sector and the intensive reconstruction or replacement of damaged infrastructure.

The baseline scenario also implies that the net outflow of people from Ukraine should decrease to 0.8 million from 8 million in 2022 and that 1.4 million to 1.5 million of people would return home in 2024 and 2025 each.

The NBU expects that Ukraine will continue to receive substantial international financial support in the amount of $38.6 billion in 2023, $20 billion in 2024, and $8 billion in 2025, compared to $32.5 billion last year.

The NBU sees the prolongation of the crisis and its possible escalation as the most significant risk to this scenario, assessing its likelihood at varying from 25% to 50%.

The NBU also allows for 15%-20% likelihood of such risks as increasing emigration and growing power shortage due to damage caused to the infrastructure, as well as misbalanced state financing (the freezing of housing and utility rates, shrinking international aid, and the monetary financing of the budget deficit).

The NBU assessed the likelihood of delays with the IMF program implementation and the termination of the grain corridor at under 15%.

The bank also mentioned a new edition of the 'Marshall Plan' for Ukraine as a factor that might considerably influence and improve the forecast, although it sees the likelihood of its launch as being under 15%.