Fitch improves Ukraine's 2023 GDP growth outlook to 5.1%, expects this to slow to 3.8% in 2024
MOSCOW. Dec 11 (Interfax) - Fitch Ratings has improved its outlook for GDP growth in Ukraine this year to 5.1% from the 3.5% it was expecting in June due to further business adaptation to the military operation, improved consumer confidence and agriculture growth.
"We project slowing sequential economic recovery towards year-end, and full-year GDP growth of 3.8% in 2024 and 4.5% in 2025," Ukrainian media quoted the agency as saying in a statement affirming its long-term foreign-currency issuer default rating of 'CC', assigned to Ukraine.
Fitch said, however, that the lower intensity of the military operation, return of migrant and more active Black Sea port export capacity were upsides.
It said that according to UN data, the number of Ukrainian refugees had been relatively stable in 2023, at 6.3 million in November.
Fitch said Ukraine's fiscal deficit would remain high at 16.9% of GDP in 2024 and 16.3% in 2025, up from 15.4% in 2022 and 17%, including grants, in 2023.
"Fitch anticipates 2024 budget aid support will be only slightly below the $43 billion estimated for 2023, despite political risks to approval of pledged finance," the agency said.
But the agency sees increased financing uncertainty from 2025, partly due to the U.S. electoral cycle, the potential for greater donor fatigue, residual risks over EU financing plans, and the possibility that the domestic banking sector will not further increase its holding of government debt.
Fitch projects general government debt will rise to 94.5% of GDP at end-2024, from 84.1% at end-2023 and 48.9% at end-2021, well above the median for 'B'/'C'/'D' rated sovereigns of 70.7%.
Fitch expects the current account deficit will widen steadily from 4.1% of GDP in 2023 to 7.1% of GDP in 2025 from a surplus of 5% in 2022, driven by recovering imports and ongoing logistical barriers to exports.
International reserves rose $10.8 billion in the 12 months to November to $38.8 billion, supported by large official sector loans, capital controls and a lower drain from refugee spending abroad due to their ongoing economic integration.
"We forecast international reserves end 2025 at five months of current external payments, from 4.8 months at end-2023, above the current 'B'/'C'/'D' rating group median of three months," the agency said.
It said annual inflation could rise from 5.1% in November this year to average 9.1% in 2024-2025, partly due to base effects, moderately higher wage growth, and ongoing domestic supply chain disruptions.
"Fitch anticipates continued FX interventions to support broad hryvnia/U.S. dollar stability in the near term, alongside relatively gradual capital account liberalization," according to the press release.
The National Bank of Ukraine at the end of October improved its forecast for Ukraine's GDP growth this year from 2.9% to 4.9%, and next year from 3.5% to 3.6%, but worsened the 2025 outlook from 6.8% to 6%.
The government improved the its GDP growth estimate for this year from 2.8% to 5% when approving the draft state budget for its second reading in parliament in early November, but worsened it for 2024 from 5% to 4.6%.