EBRD to keep Ukraine's 2023 GDP growth forecast at 1%

MOSCOW. Sept 27 (Interfax) - The European Bank for Reconstruction and Development (EBRD) confirmed its May forecast for the Ukrainian economy to grow 1% in 2023 after what was a real 29.1% drop in GDP last year.

"In 2023, economic growth in Ukraine is expected to be 1%, reflecting deep negative annual growth in January-February, with growth of 3% expected in 2024," Ukrainian media reported, citing the bank's Regional Economic Prospects report published on Wednesday.

The EBRD said that Ukraine's GDP fell 10.5% in Q1 2023, although the inflow of external financing was larger than in 2022, and a new IMF program was in place to support macroeconomic stability. This helped push foreign exchange reserves to a record $41.7 billion at the end of July 2023 and slowed inflation to 8.6% in August from a peak of 26.6% in December 2022. The National Bank of Ukraine now has the opportunity to begin easing monetary policy and could gradually lift some foreign exchange restrictions, the EBRD said.

At the same time, uncertainty remains extremely high. The EBRD notes the negative impact of the situation in the country on the finances of most enterprises, and domestic demand remains depressed due to the eight million people who have left the country. "The non-extension of the grain export corridor adds uncertainty when it comes to the short-term outlook," the EBRD said.

The economic growth estimate of 3% in 2024 is based on the assumption that the conflict will continue at its current intensity.

The conflict in Ukraine remains a serious risk to the economic prospects of all the economies in Eastern Europe and the Caucasus, the review said.

The EBRD improved the growth forecasts for its regions in 2023 by 0.2 percentage points to 2.4%, driven by significant upward revisions in Turkey and Central Asia, but partly offset by weaker growth forecasts in developing Europe countries.

"Growth is expected to pick up to 3.2% in 2024 as inflation pressures gradually subside. The 0.2 pp downward revision from the May forecast reflects the effect of the higher base expected in 2023," the report says.

Ukraine's State Statistics Service estimated Ukraine's GDP growth in Q2 2023 at 19.5% compared to Q2 2022.

At the end of July, Ukraine's National Bank raised its economic growth forecast for 2023 from 2% to 2.9%, but lowered it for 2024 number from 4.3% to 3.5%. However, in Q2 of this year, it estimated growth at 18.1%.

The Ministry of the Economy also improved its forecast for GDP growth in 2023 from 2.8% to 4%, and next year expects it to accelerate to 5%.