Economy ministry worsens forecast for this year's GDP fall

Ukraine's GDP in 2020 will drop by 6% instead of 4.2% as predicted in April, reads the new consensus forecast released by the Ministry for Development of Economy, Trade, and Agriculture of Ukraine.

"Experts say Ukraine is showing a deeper fall than seen in the global economy. It will stand at 6% in 2020. The nature of the recovery will depend on the quarantine measures enforced in Ukraine, as well as those strengthened under 'adaptive quarantine', which will have a negative impact on the country's economy, due to which the recovery will remain slow," the outlook says.

At the same time, the Ministry predicts more restrained inflation – at 5.8% against 7% predicted earlier, as well as a stronger average annual hryvnia exchange rate of UAH 27.00 per U.S. dollar (the earlier forecast suggested UAH 28.85 to the dollar).

It is noted that budgetary incentives, introduced to support household demand and mitigate the negative consequences of quarantine measures, will increase. Amid dropping incomes, this will lead to a significant increase in the budget deficit to 5.6% of GDP.

"All elements of demand will see negative dynamics, but the largest one will be a drop in investment, which deepened to 20.3% from 14.8% in the previous consensus forecast," the report says.

The situation on the labor market will remain complicated until the end of 2020, while unemployment will be long-term due to a significant economic decline and major structural changes. The unemployment rate for the year is projected at 9.6% against 9.4% in the previous consensus forecast.

"However, already in 2021 there will be an economic growth of 3.2%, which will not compensate for the fall in 2020. Inflation will accelerate to 6.0% (calculated in December on year. All elements of demand will have a positive trend. The greatest growth will be observed again in investments – at 8.5%. Unemployment will gradually decline to 9.2%, while it will not reach the pre-pandemic level," the forecast says.

GDP outlook: background

Ministry for Development of Economy, Trade, and Agriculture estimated the drop in Ukraine's GDP in the first half of the year at 6.5%, including 11% in Q2 2020.