NBU raises GDP growth forecast for 2023 to 4.9%, sees inflation slowing to 5.9%

MOSCOW. Oct 27 (Interfax) - The National Bank of Ukraine (NBU) has improved its macroeconomic forecast for this year for the third time and now expects the country's economy to grow by 4.9% and inflation to slow to 5.8%.

The NBU also slightly raised its GDP growth forecast for 2024, to 3.6% from 3.5%, but now expects inflation to be 9.5% next year instead of the previously forecast 8.5%, Ukrainian media reported, citing an NBU presentation.

The NBU expects inflation to gradually accelerate from 5.8% in the fourth quarter of 2023 to 6.3% in the first quarter of 2024 and 7.7% in the second quarter, and then peak at 10.3% in the third quarter. It then expects inflation to slow to 9.8% in the fourth quarter of 2024 and for this trend to continue in 2025, with inflation slowing to 8.4% in the first quarter and 6.5% in the second quarter, edging up to 6.6% in the third quarter and then dropping to 6% in the fourth quarter.

The NBU's revised forecast assumes the situation in Ukraine will continue at least until the end of 2024. The unpredictability of the intensity and duration of the military operation remains the key risk in the forecast.

"The NBU has revised its main assumption regarding the longevity of high risks to security. The updated forecast envisages that they will persist until at least the end of 2024. This assumption is consistent with the vast majority of expert forecasts and survey results. It also matches the assumptions that inform the 2024 draft budget, which allocates considerable expenditures to maintain defense capabilities throughout the year," the NBU said.

The expectation of faster economic growth is due to a number of factors, including "improved adaptability of businesses and households to wartime conditions, better estimates of harvests compared to the previous forecast, more alternative routes of export supplies, and larger budgetary spending," the NBU said.

However, growth is being slowed by ongoing logistics problems and limited investment, the NBU added. It has lowered its GDP growth forecast for 2025 to 6% from 6.8%.

Estimates for nominal GDP have been revised slightly, to UAH6.625 trillion from UAH6.25 trillion in 2023; to UAH7.73 trillion from UAH7.62 trillion in 2024; and to UAH8.9 trillion from UAH8.83 trillion in 2025.

At the end of July, the NBU improved its 2023 GDP growth forecast for the second time, to 2.9% from 2% (0.3% in January), but lowered its forecast for 2024 to 3.5% from 4.3%. At the same time, the NBU also lowered its inflation forecast for 2023 to 10.6% from 14.8% (it expected 18.7% in January); and to 8.5% from 9.6% for 2024.

The official exchange rate was UAH36.53/$1 on October 26.