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Ukraine's economy-2019: Slower growth with lower inflation

16:40, 05 January 2019
9 min. 9592

At UNIAN's request, the country's leading economists have shared their macroeconomic forecasts for the coming year. They expect that in 2019, the economic situation will remain fragile, given the low probability of continued important structural changes during the presidential and parliamentary elections.

The national economy is gradually emerging from the acute crisis of 2014–2015, but the recovery doesn't impress with confidence and high rates. Unfortunately, over the five years since the Revolution of Dignity, Ukraine created no new quality of economic life and completed no radical reforms.

The war Putin's Russia is waging against Ukraine, including on the economic front, populism of the political elite, the ineffective fight against corruption, failures in HR decisions, and mistrust toward the judicial system — all this did not allow the country to make full use of own resources and attract sufficient foreign investment, which would allow running the economic engine at full capacity.

According to the State Statistics Service, in the third quarter of last year, real gross domestic product (GDP) in annual terms showed growth for the eleventh quarter in a row, while slowing to 2.8% after accelerating for two consecutive quarters – up to 3.1% in 1Q and up to 3.8% in 2Q 2018.

The rise of industrial output in January-November last year compared to the same period of 2017 was only 1.6%, while in November, a 0.9% drop was reported.

The deficit of foreign trade in goods and services, according to the National Bank, for January-October 2018 exceeded $10 billion, which is 1.5 times higher year-on-year.

At the same time, the results of the agrarian sector are rather pleasing. Agricultural output for eleven months, due to favorable weather conditions and enhanced efficiency of agribusinesses, was up 8.2%. Last year, Ukrainian farmers harvested a record 70 million tonnes of grains, which is 4 million tonnes higher than the previous maximum.

The income of Ukrainians has also been growing – the average salary in October rose by almost 25% compared with the previous year. This contributed to the retail trade turnover in January-November growing 6.2% in annual terms. A steady demand on the real estate market pushed construction works up by 6.3%.

At the same time, sadly, inflation has been chopping off bits of the rising incomes. In November, inflation accelerated to 10% in annual terms. At the same time, Ukraine's national currency, the hryvnia, survived the year quite confidently, having even strengthened against the U.S. dollar at the official rate of the National Bank of Ukraine (NBU) by 1.5%, to UAH 27.68/USD. The average rate for the year amounted to UAH 27.22/USD.

This year's forecasts made by Ukrainian authorities and key creditors are quite cautious. In 2019, the National Bank predicts economic growth at 2.5% with inflation at 6.3%, the Cabinet of Ministers – at 3% with inflation of 7.4%. The International Monetary Fund expects that in the coming year, Ukraine’s economy will grow by 2.7% with inflation at 7.3%, while the World Bank expects GDP growth of 4% with inflation at 7.3%.

Despite the ambiguous indicators of the past year and the gaps in forecasts of authorities and creditors, the experts remain cautiously optimistic in their outlooks.

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Executive Director of the Bleyzer International Foundation, Oleh Ustenko:

“It is obvious that economic growth will be very low – from two to three percent. Its main drivers will be rising government spending and consumer demand, stimulated by this spending.

Exports will continue its growth, but imports will further prevail, so the net effect will be negative for the economy. Also, we don't expect any kind of investment breakthroughs, especially considering the situation this year, when less than two billion dollars of investments went in the year prior to the elections. Most likely, in the coming year, it will be $1.5 billion max. We should not expect any progress in improving the investment climate.

Most likely, migration processes will be quite active, which for the Ukrainian economy will mean a decline in economic growth rates. If cooperation with the International Monetary Fund continues, I don't see any risks to financial stability.

The inflation rate will be at 10%. As for the exchange rate, in conditions when international reserves have already been formed and there is an opportunity to get at least the second tranche from the IMF, as well as to take advantage of the opportunity to access external borrowing platforms, which the Ukrainian government will immediately do, there are no serious forex threats on the way. At the end of the year, the hryvnia exchange rate could be in the range of UAH 30-33 to the dollar.”

Head of the financial analysis department at ICU, Oleksandr Martynenko:

“By suppressing inflation, tight monetary policy seriously limits the country's access to financing and thus affects economic growth. The consequences of monetary policy, a “hard landing” of world's major economies, and political instability present the highest risks for the Ukrainian economy in 2019.

Our forecast for real GDP growth for 2019 is 2.3%. Growth will slow down due to a decrease in fiscal incentives and a weakening of foreign markets.

Our base scenario for 2019 is a soft devaluation of the hryvnia to 30 UAH/USD by the end of the year. However, forecasts can be revised in case of higher political instability and devaluation expectations.

By the end of 2019, inflation should drop to 8.5%, mainly due to the NBU's tight monetary policy, slower consumption growth, and a cooling in external commodity markets.

In 2019, support for import consumption will weaken, while private money transfers will continue to grow, while dividend payments to foreign companies will decline. As a result, the current account deficit will shrink to 3.2% of GDP. The main risks of a growing deficit come from the steel and energy markets. ”

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Concorde Capital analyst Yevhenia Akhtyrko:

“Under the baseline scenario, GDP growth in 2019 will be 2.9%, while industrial output will rise 2%. The budget deficit will be 2.5% of GDP, and public debt to GDP ratio – at 60.7%. Ukraine's international reserves by the end of the year will amount to $18.8 billion. Consumer inflation for the year will be at 6.7%, and the average annual hryvnia exchange rate – at UAH 28.68/USD.

The main assumption of the forecast is Ukraine's continued cooperation with the IMF under the new 14-month [stand-by] program. In the coming year, our country needs to receive a new tranche of IMF financing. As in the past year, continued cooperation with the Fund will be a “ticket” for Ukraine’s entry into the foreign borrowing market.

Ukraine will have enough foreign exchange reserves to repay debt obligations. But after paying the debts, it will be necessary to replenish reserves so that they do not fall below the critical level of three months of imports. Only borrowing from the IMF and new placements of international eurobonds will be able to provide sufficient replenishment.

Getting the next tranche of financing from the IMF this year will be an extremely difficult task, given the growing uncertainty over the upcoming presidential and parliamentary elections.

All economic expectations in 2018 were associated with the development of Ukraine’s cooperation with the IMF. Amid double elections, the degree of uncertainty in 2019 will remain very high. This will have a huge impact on virtually every economic decision.”

Chief economist at Dragon Capital, Olena Belan:

“We expect real GDP growth in 2019 to slow from more than 3% last year to 2.7%. Domestic consumer and investment demand will remain the main driver of growth. Consumer demand will increase due to the further inflow of remittances from labor migrants, growing wages in the private sector, and campaign expenses of political parties.

The growth of state budget expenditures, including on social benefits and public sector wages, will be restrained due to the need to service the debt. Domestic investment will continue to increase, but growth will slow down after several years of rapid double-digit growth. The slowdown in investment, along with the expected decline in agricultural yields after this year's records, will lead to a slower GDP growth.

Consumer inflation at the end of 2019 will slow from about 10% in 2018 to 6.5% in annual terms due to the tight monetary policy of the National Bank, lower world oil prices, and in the absence of pressure from the supply side.

The hryvnia exchange rate will drop slightly – to UAH 30.5/USD at the end of 2019 and UAH 29/USD on average throughout the year. The volume of international reserves at the end of 2019 will rise to $21 billion due to the active foreign borrowings from the IMF, official lenders, and foreign markets.

Our forecast is based on key assumptions that Ukraine will continue to cooperate with the IMF and other official creditors, that presidential and parliamentary elections this year will be held calmly and on schedule, that the terms of trade will remain neutral (world prices for the main goods of Ukrainian exports and imports will move synchronously), and that weather conditions in general will be favorable for agriculture.

Accordingly, the main risks for the forecast are “dropping out” of the IMF program, a significant deterioration in the situation on world commodity markets, social unrest on the eve of or during elections, and a significant decrease in the agricultural harvest.

Given the large payments on foreign debt in the coming year, including to the Western partners, the greatest risk Ukraine is facing is non-cooperation with the IMF. In this case, default and destabilization of the foreign exchange market would be very likely, which Ukraine would have to cope with on its own – without  the support of its western partners. Therefore, the situation could quickly spiral out of control and transform into a full-scale economic crisis.

2018 was a year of gradual economic recovery and continued important reforms. 2019 is a year of great risks and challenges.”

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Executive Director of the Independent Association of Banks of Ukraine, Olena Korobkova:

“In 2019, we expect GDP growth to be at approximately 3%. The level of the budget deficit should be kept within 2.5%, which is moderate. It is a critical indicator in the context of cooperation between Ukraine and the IMF. We also expect a reduction in the public debt to GDP ratio, but its pace will not be significant. The change in the hryvnia exchange rate to the U.S. dollar is unlikely to exceed 10%. We expect a slowdown in consumer inflation, focusing on the NBU targets (6.3%).

The key factors for the implementation of this scenario are the lack of external shocks for the Ukrainian economy and the observance of budgetary discipline – double elections pose certain risks in this context.

2018 was the third year of shaky economic growth and positive developments in Ukraine's financial system, in particular, in the banking sector, after a severe crisis. According to the baseline scenario, the year 2019 will bring moderate economy growth and revival of domestic consumption, stimulated by a gradual increase in incomes of the population and social standards against the background of heightened risks of a political nature.”

Deputy Executive Director of the Center for Economic Strategy, Maria Repko:

“We should focus on the forecast indicators voiced by international financial organizations and compare them with those provided by Ukrainian government agencies:

- GDP: according to the IMF forecast, real GDP this year will grow by 2.7%, World Bank forecast gives it 4%, while Ukraine's Ministry of Economic Development and Trade suggests 3%. So, the average forecast for real GDP growth is 3%.

- Inflation: according to the IMF forecast, consumer inflation will reach 7.3%, while the economy ministery says it will be at 8%. So, the average inflation forecast is 7.65%.

NBU's gross international reserves will amount to $17.6 billion, according to the forecast of the Ministry of Economic Development and Trade, while NBU believes they will reach $18.6 billion. So, the average forecast is $18.1 billion.

As for other indicators, we look primarily at the 2019 forecasts of the Ministry of Economic Development and Trade:

- The hryvnia exchange rate will drop to UAH 30.42 per dollar;

- Industrial production will grow by 3.2%;

- National debt will be at 62.3% of GDP; and

- The budget deficit will be at UAH 90.8 billion.

It will be political factors that will primarily affect economic performance. If external aggression is building up, this, of course, will have a very negative impact on the country's economy. Also, double elections are coming – presidential and parliamentary ones. Budgetary expenses are usually inflated before the elections, so there is a very high risk that a balanced budget we're seeing now will later be revised.

Also one of the factors is continued cooperation with the IMF. In 2019, Ukraine must repay more than $6 billion in debt. Approximately the same amount of repayments is expected in 2020. There are issues with these payments – they need to be refinanced – Ukraine needs to go to the market and borrow this amount to pay off older debts. In the market, it will be a very costly endeavor – with a nearly 10% interest.

Therefore, it is imperative that the country keep the IMF program afloat as well as those with other institutional lenders (World Bank, European Union). If we manage to attract funds from international donors, as well as to enter the market with the eurobonds, Ukraine will be able to break through and make it safely through the years of peak debt burdens.”

Consensus forecast for Ukraine's economy in 2019


GDP growth forecast, %

Inflation forecast, %

Forex rate forecast, UAH/USD

Oleh Ustenko




Oleksandr Martynenko




Yevhenia Akhtyrko




Olena Belan




Olena Korobkova




Maria Repko




Consensus-forecast (median)




Taking into account the experts' forecasts, in the coming year, the growth of the Ukrainian economy will slow down to 2.8%, the consumer prices growth rate  – to 7.2%, while the hryvnia exchange rate to the dollar at the end of the year will be about UAH 30/USD. The key condition for the implementation of such a scenario is Ukraine's continuation cooperation with the International Monetary Fund and other international lenders, while the greatest risks lie in threatening upsurge of populism during the upcoming presidential and parliamentary elections amid a period of peak payments on foreign debt.

Olha Hordienko

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