EY (Ernst&Young) has worsened GDP growth forecast for Ukraine from 0.3% to 0.1% in 2013, reads latest EY report. The low level of industrial production and export volumes continue to slow down the recovery of the Ukrainian economy. However, the gradual recovery of the economy can be expected in 2014-2016 due to the improvement of macroeconomic indicators in EU and Russia. At the same time, the government will need to borrow heavily in order to finance large budget and current account deficits.

In 2014, the EY forecasts GDP growth of 2.5% y/y compared to an earlier forecast of 3.9%. The report also noted that after the sharp decline in the inflation rate last year, in 2014-2017, inflation will rise to 5%-6%, as a large budget deficit (around 6 % of GDP in 2013) might lead to the cancellation of subsidies for electricity and consumer goods. This can help attract investment through lower real interest rates, but will slow down monetary stimulus and may put pressure on the hryvnia, which already is at risk because of the balance of payments deficit and the depletion of foreign exchange reserves in connection with debt payments.

The low level of imports helps to maintain a large current account deficit (which in 2013 fell to 7.4 % of GDP), the EY notes. At the same time, significant debt service costs and a low level of reserves means that Ukraine will soon need a new IMF loan or new bilateral loans. Capital inflows might improve as a result of the signing of the Association Agreement with the EU, although this also can lead to tensions in relations with Russia.

Fitch predicts GDP growth of 2.2%, annual average inflation of 5.0% and nominal GDP of USD 178.7bn in 2014, the agency has announced. For 2013, the agency predicts Ukraine's GDP growth level at 0%, nominal GDP of USD 176.9bn and annual average inflation rate of 1.5%.

Moreover, Fitch predicts the hryvnia will devaluate to 8.5 UAH/USD be the end of 2014 and the foreign-exchange reserves to shrink from USD 17.8bn (as the agency forecasts by the end of 2013) to USD 12.9bn (by the end of 2014).

In addition, the agency believes that the current account position of Ukraine's balance of payments will be negative at 7.3% of GDP in 2013 and negative at 6.2% of GDP in 2014. Ukraine's total public-sector debt, as the agency supposes, will reach 35.7% of GDP by the end of 2013 and 41.6% of GDP by the end of 2014.

Since the beginning of 2013, the hryvnia has fallen by 1.7% from 8.0500 UAH/USD to 8.1870 UAH/USD in the interbank currency market. Foreign-Exchange Reserves of the National Bank of Ukraine decreased by 0.1% amounting to USD 21,639.34mn as of September 30.

Ukraine's economy remained in recession in Q3, as country’s GDP has contracted by 1.5% y/y, the fifth consecutive quarter of negative growth, the State Statistics Service has announced. The indicator was worse than the median estimate of 12 economists in a Bloomberg survey for 0.2% growth. In q/q terms, GDP declined by 0.4% in compliance with the season factor.

Ukraine is struggling amid falling global demand for products such as steel, a widening current-account gap, shrinking foreign reserves and trade restrictions from Russia, its biggest export market. In addition, the country has did not manage to get a loan from the IMF, because the government continues to reject conditions including higher household energy tariffs.