National Bank of Ukraine raises Q4 GDP growth forecast to 4.5%

MOSCOW. Nov 7 (Interfax) - Ukraine's real GDP will grow 4.5% year-on-year in Q4 2023, Ukrainian media reported, quoting a National Bank of Ukraine forecast.

The data is published in the National Bank's new inflation report.

In its previous inflation report, published in July, the NBU expected GDP growth to slow to 1.8% in Q4.

According to updated forecast, the Ukrainian economy will grow 5.4% in Q1 2024, the July forecast being 2.6%, and by 3.5% in Q2, compared with a previous 2.2% forecast.

The National Bank said real GDP growth slowed to 8.2% year-on-year in Q3 2023 from 19.5% in Q2.

"Higher yields for the main crops than in the past due to extremely favorable weather conditions was a significant factor in the improved dynamics. Yield for early grains not only exceeded the previous year, but also the record year of 2021, while the sown areas for most crops remained almost level with the previous year," the report says.

The NBU, which raised its GDP growth forecast for this year as a whole from 2.9% to 4.9%, estimates the bigger harvest will make a direct positive contribution of 1.3 percentage points to GDP growth.

The NBU at the end of October slightly improved its forecast for Ukrainian economic growth next year from 3.5% to 3.6%, lowering it from 6.8% to 6% in 2025. The regulator said its revised forecast assumes the conflict 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.

In the updated inflation report, the NBU singles out as a separate risk a decrease in the volume and regularity of international aid, which could result in a resumption of monetary financing of the Ukrainian budget by the NBU, as well as the risk of additional budgetary needs and significant quasi-fiscal deficits. The likelihood of these risks is estimated at 15%-25%, and the impact on the macro forecast is estimated as strong.

It is mentioned that a continuation of the moratorium on increasing tariffs for certain housing and utility services amid the ongoing conflict in the country will only partially offset the impact of these pro-inflationary factors.

The National Bank considers that delaying decisions to bring tariffs for housing and communal services to economically justified levels could result in an accrual of quasi-fiscal deficits and a deterioration of the financial state of state-owned energy companies.

"This, in turn, poses the risk of instability in the energy market and a decrease in the investment potential of this sector," the regulator said.

It said that on the other hand, accelerated growth in energy costs could create additional inflationary pressure and social tension and necessitate a significant increase in subsidies for households.

This report, like the previous one, mentions such a factor as a "Marshall Plan" for Ukraine, which could greatly influence and improve the macro forecast, and the NBU kept its probability at the level of 15%-25%.