IMF improves 2023 inflation, unemployment, public debt and int'l reserves forecasts for Ukraine

MOSCOW. June 30 (Interfax) - Inflation in Ukraine will fall to 15.5%, while real incomes will go up 1% in 2023, the International Monetary Fund said in an updated, improved forecast following the first revision review of the Extended Fund Facility program, Ukrainian media reported.

The IMF also improved its inflation outlook for 2024, to 10%, although the forecast for real income growth remained virtually the same at 2.5%.

The IMF predicted in its initial forecast at the end of March this year that inflation for this year might fall to 20% from 26.6% last year and that real incomes might fall another 2% after dropping 21.1% in 2022.

The updated report says economic activity has been more resilient than expected, with growth for 2023 upgraded to 1-3% as domestic demand recovers. The estimate of the contribution by private consumption was raise from 1.2% to 2.7% and public consumption from -0.2% to 0.7%, as well as investment from 0.3% to 2.6%, while the negative contribution of net exports remained at 4.1%.

At the same time, Fund representatives said that for the second half of this year, forecast real GDP for the dynamics remained approximately the same as for the subsequent three years.

The IMF improved its expectations for nominal GDP growth this year from UAH 6.05 trillion to UAH 6.5 trillion, and next year from UAH 7.37 billion to UAH 7.71 billion, including by raising the estimate of nominal GDP for last year from UAH 4.9 trillion to UAH 5.19 trillion.

The updated macro forecast also lowered the unemployment outlook for this year from 20.9% to 19.4%, and next year from 11.9% to 10.6%.

According to the Fund's new estimates private savings this year will grow 25.6% and investments 12.2%, while levels of 31.8% and 15.8% were expected previously.

As for public finances, the IMF improved the deficit forecast to 19.1% of GDP from 20.4% of GDP, or, excluding grants, from 28.2% of GDP to 25.8% of GDP.

The estimate of net external financing was lowered from 19.8% of GDP to 17.1% of GDP, partially offset by a higher forecast for net domestic financing from 0.6% of GDP to 2% of GDP by banks.

As a result, the IMF significantly improved its forecast for public debt growth this year from 98.3% of GDP to 88.1% of GDP, including by revising its estimate as of the end of last year from 81.7% of GDP to 78.5% of GDP.

Public debt will continue to grow for another two years and will peak at 100.7% of GDP in 2025, while the original forecast assumed it would peak at 105% of GDP as early as next year.

The IMF worsened the current account deficit forecast from 4.4% of GDP to 5.7% of GDP, but the estimate of international reserves at the end of this year has improved to $30.5 billion from $29.6 billion.