Country Forecast Ukraine August 2018 Updater

Country Forecast Ukraine August 2018 Updater

  • August 2018 •
  • Report ID: 1698134 •
  • Format: PDF


  • The risk of political instability is high, but The Economist Intelligence Unit expects the government, headed by the prime minister, Volodymyr Groysman, to serve out its term. Political parties are gearing up for the presidential and parliamentary elections, which will take place next year.
  • The diplomatic, economic and military conflict with Russia over the Donbas region looks set to endure throughout the forecast period (2018-22). The Minsk II agreement will not end the conflict in eastern Ukraine.
  • The chances of an improvement in US-Russia ties in 2018-19 are slim owing to new US sanctions and intense media scrutiny of the US government's actions towards Russia. The EU will maintain its sanctions on Russia in 2018-22.
  • Real GDP grew by 2.5% in 2017. In 2018 we forecast a slight acceleration, to 3%, as the investment boom continues, albeit at a slower pace than in 2017, and as private consumption continues to grow. We forecast annual real GDP growth of 2-3% in 2019-22, mainly led by private consumption.
  • In July the National Bank of Ukraine (NBU, the central bank) raised its key rate by 50 basis points, to 17.5%, to curb persistently high inflation. Inflation averaged 14.4% in 2017, and we expect it to decelerate to 10.5% in 2018. In 2019-22 inflation will decelerate further, to 7.5% per year on average.
  • The hryvnya depreciated against a strong US dollar in 2017. In 2018-22 higher consumer demand, lower average global steel prices, persistently negative foreign investor sentiment and a gradual tightening of the US monetary policy will cause further nominal currency depreciation against the US dollar.
  • The government budget registered a deficit amounting to 1.5% of GDP in 2017. We forecast that the deficit will widen to 2.6% in 2018 owing to increasing social expenditure. In 2019-22 we forecast that the annual budget deficit will average about 2% of GDP. Progress on structural reforms appears vastly insufficient for the disbursement of other tranches of the IMF facility.
  • The current-account deficit amounted to 2.2% of GDP in 2017. We forecast that the deficit will expand sharply in 2018 owing to higher global energy prices and pent-up domestic demand. In 2019 the current-account deficit will continue to widen because of an expected sharp drop in average global steel prices.


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