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ICU predicts Ukraine's GDP 2% growth in 2023 with inflation of 15-16%
KYIV. March 28 (Interfax-Ukraine) – The economic recovery will be barely noticeable in 2023, a moderate GDP growth of 2% is expected, which implies the economic output will be at 71-73% of the pre-war level, such a macroeconomic forecast was published by the ICU investment group on Tuesday.
"The Ukrainian economy has stabilized and, assuming no major escalation of the war, we expect an otherwise uneventful 2023. Real GDP is set to stay close to last year’s level following a 29% contraction in 2022," according to the statement.
ICU assumes that the National Bank will continue to weaken its hawkish rhetoric and may also start lowering its key policy rate from April or June, despite the fact that the current NBU forecast provides for an unchanged discount rate until April 1, 2024.
In terms of the balance of payments, ICU expects a current account deficit of 2% or 3% of GDP after a surplus of 5.4% of GDP in 2022 due to a growing deficit of trade-in-goods. According to the document, the current account gap will most likely be safely covered with net capital inflows via the financial account. Thus, Ukraine is very unlikely to face any risks related to the external sector thanks to continued generous financial aid from international partners.
It is specified that Ukraine’s trade-in-goods deficit expanded rapidly during the winter as frequent electricity blackouts increased the economy’s reliance on imports. External deliveries of power generators, motor fuel, and certain consumer goods surged. In the first two months of the winter, import of goods was only 12% lower than over the same period a year before. Meanwhile, exports stood at just 52% of last year’s volumes, according to the document.
The combined deficit of external trade-in-goods-and-services will thus exceed 20% of GDP in 2023, up from an estimated 16% in 2022.
ICU said the Ukrainian government will receive at least $25 billion in net loans in 2023 (including net funding from the IMF), which is more than a 50% increase compared with 2022. These loans will be sufficient to offset private capital outflows.
"Our thinking is that the NBU will maintain the current exchange rate at least until the end of 3Q23, but may opt for small depreciation of about 10% in 4Q23. Its decision will largely depend on expectations about the size of possible foreign aid in 2024," according to the forecast.
As for the national budget, the investment group expects that domestic tax and non-tax revenues in 2023 will again cover less than half of the total needs of the national budget, the deficit of which is expected at 28% of GDP, which is almost the same as in 2022.
According to the presented forecast, the central budget expenditures are expected to decline marginally relative to GDP, from 54% in 2022 to 51% in 2023. Tax revenues are likely to stay little changed at 19-20% of GDP while non-tax revenues (excluding external budgetary grants) will decline to 3-4% from 7% of GDP.
The experts also expect a decrease in the unemployment rate, by 4% year-over-year, which will amount to 24% in 2023.