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Economy 2019-08-14T04:03:11+03:00
Ukrainian news
NBU Raises 2019 GDP Growth Forecast From 2.5% To 3%

NBU Raises 2019 GDP Growth Forecast From 2.5% To 3%

The National Bank of Ukraine has raised its growth forecasts for Ukraine’s gross domestic product from 2.5% to 3% in 2019 and from 2.9 to 3.2% in 2020 in its latest macroeconomic forecast.

The National Bank of Ukraine announced this in a statement, the Ukrainian News Agency reports.

“Compared with the April macroeconomic forecast, the National Bank has raised its economic growth forecast for 2019 (from 2.5% to 3%) and 2020 (from 2.9% to 3.2%) because of stable domestic demand, better conditions of trade, and the expected increase of the grain harvest," the bank said in the statement.

According to the National Bank of Ukraine, domestic demand will remain the main driver of economic growth in the coming years, the pace of increase of private consumption will slow but remain significant under the influence of the increase of real household incomes – wages, pensions, and remittances from abroad.

The constraining factors for economic growth are weak economic activity in the world and reduction of the volume of transit of natural gas to Europe from 2020 as a result of the construction of bypass gas pipelines.

Resumption of cooperation between Ukraine and the International Monetary Fund remains the main assumption on which the macroeconomic forecast is based.

This will allow Ukraine to receive official financing from other sources, improve conditions for access to international capital markets, and maintain investor interest in Ukrainian assets.

The relevant borrowings will allow the Ukrainian government to finance substantial repayments on its foreign debt. It will also allow the private sector to attract foreign investment.

As a result, Ukraine’s international reserves will increase to USD 23 billion in 2021.

The main internal risks to the outlined scenario are possible delays in implementation of key reforms or steps to reverse previous achievements, including through judicial and legislative decisions. These could significantly increase the vulnerability of the Ukrainian economy and prevent further cooperation with the International Monetary Fund.

This could also lower exchange-rate and inflationary expectations and hamper access to international capital markets under conditions of high debt burdens in the following years.

Such risks as cessation of transit of Russian gas through Ukraine from the beginning of 2020, intensification of trade wars, escalation of geopolitical conflicts, escalation of military conflict, and new trade restrictions by Russia are also relevant.

In its latest macroeconomic forecast, the National Bank retained the expectation of the inflation rate at the end of 2019 at the level of 6.3%.

"As before, the NBU predicts that inflation will drop to 6.3% at the end of this year, at the beginning of the next year it will return to the target range and reach the medium-term goal of 5% at the end of 2020," the report says.

The National Bank believes that the slowdown in inflation will continue to be predetermined by quite tight monetary conditions, high real interest rates will contribute to the investment attractiveness of hryvnia financial instruments and, accordingly, support the hryvnia exchange rate.

In addition, such a monetary policy will limit the pressure from consumer demand.

Also, gradual disinflation is facilitated by a balanced fiscal policy, a slowdown in wage growth, relatively low energy prices on world markets, a significant supply of domestic and foreign food products.

Further cooperation with the International Monetary Fund remains the main assumption of the macroeconomic forecast.

As Ukrainian News Agency earlier reported, in the April macroeconomic forecast, the NBU maintained its forecast of GDP growth by 2.5% in 2019 with inflation of 6.3%.

The National Bank of Ukraine retained its GDP growth forecast of 2.5% and inflation rate of 6.3% for 2019 in its April macroeconomic forecast.

According to the law on the state budget for 2019, GDP growth is projected at 3%, and nominal GDP to UAH 3,946.9 billion.

At the end of May, experts worsened the forecast for GDP growth from 3% to 2.7% in 2019 according to a consensus forecast organized by the Ministry of Economic Development and Trade.

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