Week's balance: Slower inflation, IMF forecast, and new sanctions against Russia
The State Statistics Service reported on a slower pace of inflation, Ukraine's key creditor, the International Monetary Fund, released its forecast of the country's economy prospects, while the government introduced another set of sanctions against the aggressor state, Russia – these are the main economic news of the outgoing week.
This week, despite the fact that fierce political battles being in the focus of Ukrainians ahead of the election runoff, the second week of April was also marked by a number of important economic events.
On Wednesday, the country saw the first results of large-scale repairs of highways - the Road Service opened a section of the first cement-concrete road in Ukraine - Dnipro-Reshetylivka in Poltava region. For the time being, traffic is allowed only on a 1.7 km segment along the right-hand part of the motorway. Infrastructure Minister Volodymyr Omelyan commented on the opening, optimistically claiming that the warranty period for the new road is 28 years – the highest term recorded in Ukraine.
Other positive developments came from the State Fiscal Service (SFS) of Ukraine which has included eight newest models of software and hardware systems in the State Register for the registration of payment transactions with the use of personal computers, tablets and smartphones.
In particular, this refers to the fiscal data processing complex X PRRO, the specialized payment transactions recorder SRRO, the software system Webkassa, the fiscal server iNNOVATE!, Smart KASA, Easy S1, Ukrtrimeks RRO, and the SFS-developed E-Receipt system.
Participants in the pilot project involving innovative technological solutions will use the said newest models to register payment transactions in retail, public catering, currency exchange, vending, money remittances, and passenger transportation.
The pilot project will last until December 31, 2019. Following this, the Finance Ministry will decide on the commercial operation of certain models.
Inflation in Ukraine in March 2019 was estimated at 8.6% year-over-year (y-o-y) against 8.8% recorded in February 2019 y-o-y.
The prices rose by 0.9% in March 2019 from February 2019 against 0.5% in February 2019 from January 2019, according to the State Statistics Service. Against December 2018, consumer prices grew 2.4%.
The highest increase in March 2019 y-o-y was recorded in prices of vegetables (by 37.7%), tariffs on passenger transportation by rail (28.6%) and by road (27%), sewerage (25.2%), and prices of natural gas (22.9%), the report said.
Over the period under review, a decrease was recorded in prices of fruit (by 22.6%), eggs (18.1%), sugar (5.8%), and fuel and lubricants (3.5%).
The slowdown in consumer inflation in Ukraine in March to 8.6% in annual terms practically corresponds to the forecast published in National Bank's inflation report for January.
As noted by the NBU, core inflation slowed down somewhat faster than expected, primarily due to the strengthening of the hryvnia exchange rate to the currencies of partner countries.
The National Bank promises to continue to direct its policy towards slowing the pace of price growth and achieving the medium-term inflation target at the level of 5% plus/minus 1 percentage point.
The National Bank of Ukraine predicts a slowdown in inflation to 6.3% in 2019.
According to the consensus forecast of experts polled by UNIAN, this year Ukraine is expected to slow down in consumer price growth to 7.2%.
New sanctions against Russia
The Ukrainian Cabinet of Ministers has expanded the list of goods originating from the Russian Federation whose imports into Ukraine are banned.
The list includes urea-formaldehyde concentrate and resins, springs for bogies of freight cars (cylindrical outer helical springs and cylindrical inner helical springs), equipment for switching or protecting electrical circuits (relays), which are used in railway automation devices for signaling and communications, as well as electrical conductors for voltage over 1,000 V.
In addition, it includes glass canning jars, bottles for food and beverages made of colorless and colored glass, and other glass containers.
The Cabinet says that the ban on the said goods will not result in their deficit and stimulate domestic production.
It is also set to have a positive influence on output and financial indicators of Ukrainian enterprises in corresponding industries.
According to the report, the decision will also allow supplies to redirect exports to the domestic market of glass containers and diversify imported products, in particular, by increasing trade with the EU countries. In turn, this will contribute to the investment activity of Ukrainian companies, will allow Ukrainian producers to maintain existing jobs and create new ones, increase tax payments to budgets of all levels.
In the outgoing week, the key creditor of Ukraine, the International Monetary Fund, published its April World Economic Outlook, where there was also a place for the Ukraine review.
Thus, the IMF predicts the devaluation of the hryvnia in 2019 to UAH 28.68 / USD. from UAH 27.19 / USD. in 2018. In 2020, the hryvnia will devalue up to UAH 29.96 / USD, in 2021 - up to UAH 30.55 / USD, in 2022 - UAH 31.01 / USD, in 2023 – to UAH 31.47 / USD, and in 2024 - to UAH 31.94 / USD.
The IMF has estimated the country's gross financing needs for 2019 at 8.1% of GDP. According to the fund's estimates, in 2020, Ukraine's gross financing needs will amount to 8.3% of GDP, including 2.3% of GDP to finance the budget deficit and 6% of GDP to finance debt.
The IMF forecast says the state budget deficit in Ukraine in 2021 will decrease to 2.2% of GDP, and in the period from 2022 to 2024, it will be 2% of GDP each year.
The Fund also forecasts a reduction in the level of Ukraine’s state debt to GDP from 63.9% in 2018 to 62% in 2019, 57.9% in 2020, 53.8% in 2021, 49.8% in 2022, 46.2% in 2023, and 43.7% in 2024.
The IMF has also maintained its GDP forecast for the country unchanged, saying the Ukrainian economy will grow by 2.7% in 2019.
Ukraine's real GDP in 2020 is expected to grow by 3%, as before.
According to the State Statistics Service, the real GDP growth in Ukraine in 2018 also accelerated to 3.3% from 2.5% in 2017. Another important news was the World Bank's review of migration, where Ukraine was noted as the major receiver of remittances in the "Europe and Central Asia" region.
The World Bank says Ukraine in 2018 received a new record in remittances of more than $14 billion in 2018, up about 19% over 2017.
This surge in Ukraine reflects including a revised methodology for estimating incoming remittances, as well as growth in neighboring countries' demand for migrant workers.
As UNIAN reported earlier, the National Bank estimated the volume of remittances to Ukraine in 2018 at $10.888 billion, which was 17.5% up from 2017.
The largest amount of remittances to Ukraine comes from Poland, Russia, USA, Czech Republic, and Italy. At the same time, the volume of remittances from Poland grew by 16.4% compared with the previous year, while those from Russia shrank by 26.6%.
The next week will be marked by more political battles, which will climax in the runoff of the presidential election on April 21. It is early to say how economic life will change in the country following the elections, but it will definitely not be boring.