Ukraine's National Bank predicts acceleration of inflation by year's end

Ukraine's National Bank predicts inflation in the country will accelerate in the second half of 2020, and by the end of the year, it will be 4.7% year-on-year (y-o-y).

"Firstly, it will be driven by soft monetary and fiscal policies that will support consumer demand and business activity," the inflation report by the National Bank of Ukraine (NBU) said. "Secondly, prices will be affected by a rise in prices of energy resources, as well as the worst fruit harvest."

Consumer inflation

According to the document, consumer inflation at the end of the second quarter accelerated to 2.4% in June 2020, however, it was still at the lower end of the target range of 5% ± 1 pp. The main factors behind the acceleration of inflation at the end of the quarter were a rise in prices for certain raw products due to unfavorable weather conditions, as well as the deterioration of inflationary expectations of businesses and households.

GDP decline

The National Bank of Ukraine estimates the country's GDP in the second quarter of 2020 will decline by 11% (y-o-y).

Read alsoUkraine's Central Bank revises downwards GDP forecast for 2020

The main factors were full-scale quarantine-related restrictions on certain types of activities, as well as a decrease in production in agriculture due to a delay in the launch of the harvesting campaign.

The NBU says the stimulating measures it took jointly with the government supported business activity and private consumption.

"With relaxing the quarantine measures, a gradual recovery of both domestic and global economic activity began in May. The latter supported the rise in prices on global commodity markets. Most of the domestic enterprises of the service sector, which suffered the most during the coronavirus crisis, have already returned to full-scale work," it said.

Background

• The International Monetary Fund has revised the forecast for the Ukrainian economy in 2020, saying it will decline by 8.2%, while the previous forecast issued April said the decline would be 7.7%. According to its forecasts, the recovery of the Ukrainian economy after the recession caused by the coronavirus pandemic to pre-crisis indicators could take two years, 2023-2024.
• Ukraine's Ministry for Development of Economy, Trade and Agriculture issued an updated macroeconomic forecast for the next three years, projecting an increase in GDP by 4.6% in 2021, 4.3% in 2022, and 4.7% in 2023.
• Since June 12, the National Bank of Ukraine lowered its key policy (refinancing) rate to a historic low of 6% per annum.
• On July 23, 2020, the Central Bank kept the refinancing rate unchanged, at 6% per annum.