Ukraine's economic growth could exceed 5% in 2023 thanks to higher-than-expected international financial aid inflows, good harvest, no disruptions in the power system, a new sea corridor and businesspeople's adaptability, Deputy Governor of the National Bank of Ukraine (NBU) Sergei Nikolaichuk said.
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"Given that the third quarter was a little better than we projected in October, and we see better results in the fourth quarter, in particular, in the logistics of our export products, we are highly likely to have a result for 2023 better than the 4.9% we projected in October," Nikolaichuk said in an interview with Ukrainian media.
As for the possible revision of the macro forecast for 2024, Nikolaichuk said that the regulator would reassess various risks and factors in January, including the impact of mobilization on the expectations of the population and businesses.
"But I would not expect a significant change in this forecast. Thus, on the one hand, the economy has performed better in 2023 and is generating additional momentum for 2024, as well.
"But at the same time, for example, the high harvest last year increases the comparison base for the harvest and, accordingly, the GDP this year," Nikolaichuk said.
The upward review of the forecast may be affected by the operation of the sea corridor, which Kiev unilaterally declared and which improves the economic activity of export-oriented industries, as well as by reducing the electricity shortage, he said.
Speaking about negative risks, Nikolaichuk emphasized that the main thing remains the continued crisis, as well as the pace and sufficiency of the international aid volume.
"In fact, the risk of uneven receipt of funds from international partners has already materialized. So far, our baseline scenario envisages that we will be able to receive $38 billion from partners in 2024.
"But compared to October, the risks regarding the pace and the volume of inflow of this amount are higher," he said.
The expectations for 2025 are radically different from 2024, as how the economy will perform during the post-crisis recovery remains a mystery for the regulator, Nikolaichuk said.
"At the same time, we need to understand how to pursue the macroeconomic financial policy in these conditions.
"In fact, for these purposes, we are developing a scenario with the assumption of a substantial reduction in security risks, and we have in reserve a certain scenario of appropriate correction of our policy," he said.
Commenting on the International Monetary Fund (IMF)'s negative scenario, according to which, if the crisis persists, Ukraine's GDP will fall by 5% in 2024, Nikolaichuk said that the only risk of further prolongation of the crisis will not result in this kind of deterioration of the economic situation.
"Their assessment of the economic slump under the negative scenario, in my opinion, should provide for the realization of slightly other risks. We see that in 2023 the crisis lasted the whole year, but at the same time we had improved indicators of economic activity throughout the year," he said.
In his opinion, in the case of "a longer duration of high security risks" the impact on the economy could be made up for by greater support from international partners, Ukrainian society's higher adaptability to the crisis conditions.
"We have [forecast for] the year of 2025 that is radically different in its assumptions from 2024, because it is a year of post-crisis recovery, a year with significantly lower security risks.
"Do we need to forecast this post-crisis recovery now, when it is unclear whether the crisis will end? The question is quite nontrivial," Nikolaichuk said.
This has become much easier for the National Bank to project how the economy will act under a certain status quo, when security risks remain quite high and a substantial part of budgetary needs are funded by international partners, he said.
"How the economy will behave in the post-crisis environment remains a certain terra incognita for us," Nikolaichuk said.
At the same time, it is essential to understand how to pursue the macroeconomic financial policy amid the post-crisis recovery, he said.
"In fact, for these purposes, we are developing a scenario with the assumption of a major reduction in security risks, and we have in reserve a certain scenario of appropriate correction of our policies.
"But it is clear that as we get closer to this situation, we will calibrate our policies accordingly, so that they meet the new conditions as much as possible, which we really expect and hope for," Nikolaichuk said.
As reported, the NBU in late October improved its GDP growth forecast for Ukraine this year from 2.9% to 4.9% and next year from 3.5% to 3.6%, downgrading it for 2025 from 6.8% to 6%.
The government, when endorsing the draft state budget for the second reading in early November, improved its estimate of GDP growth this year from 2.8% to 5%, but downgraded it for 2024 from 5% to 4.6%. In 2025-2026, the government expects economic growth to accelerate to 6.8% and 6.6%, respectively.
As part of the second review of the Extended Fund Facility Arrangement (EFF) with Ukraine, the IMF has again included in it the possibility of a negative scenario if the crisis continues throughout 2025.
In this scenario, GDP growth in 2024 by 3%-4% swings to a 5% decline with the zero growth in 2025, instead of the 6.5% growth in the baseline scenario. ■