Ukraine's Central Bank revises downwards GDP forecast for 2020

Ukraine's Central Bank has revised downwards its GDP forecast for 2020, saying the Ukrainian economy will contract by about 6% this year, but will resume growth at around 4% in subsequent years. 

Decline in GDP

"The GDP forecast for 2020 has been revised towards a significant fall – about 6%. The continued adaptive quarantine in a number of areas and the still depressed domestic demand will hold back the economic recovery. A slow recovery from the crisis in other countries will narrow the opportunities for a quick recovery of exports," the inflation report by the National Bank of Ukraine (NBU) said.

Fiscal impulse

A positive fiscal impulse will be formed in 2020 to counter the negative consequences of the crisis, reflecting a significant expansion of the consolidated budget deficit in the current year, the NBU said.

The funds will be spent on measures to stimulate economic activity, support businesses and households. After the recovery of sustainable economic growth, the need for significant fiscal stimulus from the government will decrease, so the deficit in the general government sector will gradually decrease.

Read alsoUkraine's GDP may drop at least by 5% over coronavirus quarantine – expert

According to the report, state debt and government-guaranteed debt in 2020 will rise to 62% of GDP due to a widening budget deficit, a fall in nominal GDP, and a weaker hryvnia than at the end of last year. In the future, this indicator will decline by 2-3 percentage points annually due to economic growth and balanced fiscal policy.

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 National Bank of Ukraine kept the refinancing rate unchanged, at 6% per annum.