Private consumption will decelerate on the back of slower growth in real household income / Photo from UNIAN
The harvest of grain and oilseeds is expected to decline compared to the 2018 record.
Ukraine's Central Bank forecasts that the country's GDP growth will slow to 2.5% in 2019, only to speed up again starting next year: to 2.9% and 3.7% in 2020 and 2021, respectively.
"The causes of the 2019 economic slowdown include weaker growth in the world economy and global trade, a restrained fiscal policy due to the need to repay large amounts of government debt, and the tight monetary conditions necessary to bring inflation to the target," the National Bank of Ukraine (NBU) said in its Inflation Report for April 2019.
In addition, the harvest of grain and oilseeds is expected to decline compared to the 2018 record. "These developments will be counterbalanced in part by better terms of trade, due to high prices for selected Ukraine's export commodities and lower natural gas prices," it said.
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The NBU says private consumption will remain the main driver of economic growth. However, it will decelerate on the back of slower growth in real household income, such as wages, pensions and remittances from abroad. Investment demand will be dampened by the political uncertainty arising from the two elections in 2019.
Starting next year, real GDP growth will be spurred by the gradual easing in monetary policy, which will stimulate domestic demand, and by a pick-up in investment activity once political uncertainty abates. Economic growth will be dampened to some extent by a decrease in gas transit to European countries, due to the construction of bypassing gas pipelines.
The current account deficit in 2019 will remain at the previous year's level, amounting to 3.3% of GDP, driven by counteracting factors. Export proceeds from last year's record harvest of corn and effects from favorable terms of trade will be offset by a cooling in the economies of Ukraine's main trading partners, which will affect exports and remittances from labor migrants.
The current account deficit will widen somewhat over the forecast horizon (hitting 4% of GDP in 2021), due to a decrease in gas transit and subdued demand from Ukraine's main trading partners, and more robust growth in domestic investment demand.