World Bank revises Ukraine’s GDP growth forecast to 0% in 2013.

By bne IntelliNews October 7, 2013

The World Bank has worsened its forecast for Ukraine's GDP growth in 2013 from 1% to 0%, Anastasia Golovach, an economist at the World Bank's regional office for Ukraine, Belarus and Moldova, has told. GDP growth in H2 will be attributed to a good harvest of farm crops and weak comparative base of the previous year,  she noted.

The World Bank also worsened its outlook on Ukraine's GDP growth in 2014 from 3% to 2%, and also supposes the country's GDP to shrink 1% in 2015. Nominal GDP in 2013 is predicted at UAH 1,437.1bn, in 2014 at UAH 1,502.5bn and in 2015 at UAH 1,651.0bn.

Moreover, the World Bank has improved the forecast of Ukraine's inflation rate in 2013 from 8.7% to 0.3% (December to December). The bank experts suppose that the inflation rate in Ukraine will be 2% in 2014 and 18% in 2015.

Under the WB's forecasts, Ukraine's budget deficit (counting budget deficit of Naftogaz of Ukraine, not counting expenses on bank recapitalizations) will be 4.5% of GDP in 2013, 4.4% of GDP in 2014 and 3.2% of GDP in 2015.

The WB also supposes that Ukraine's foreign debt will be 68.0% of GDP in 2013, 68.1% of GDP in 2014 and 77.5% of GDP in 2015. The WB predicts that Ukraine's exports will decline 2.6% in 2013, grow 0.8% in 2014 and 2.0% in 2015. At the same time, imports in 2013 are predicted to reduce 4.1%, rise 2.0% in 2014 but fall 5.3% in 2015.

World Bank experts deem that should fiscal and monetary policy remain unchanged in H2, fiscal deficit and current account balance deficit may further grow. The increase in the imports of natural gas coupled with the necessity for the redemption of currency liabilities may increase the need for the refinancing, the WB notes. Thus, if the exchange rate policy remains unchanged and remains aimed at the retention of the fixed currency rates, gold and cash reserves of the NBU may by the end of 2013 go down to the level covering the importation of further periods for the time of less than two months.

WB also believes that possible signing of the Association Agreement with the European Union will be positive for the country despite the domestic policy scenario; at the same time, in case of rapid reformed Ukraine will have better positions for possession of most considerable benefits in the frames of the creation of the free trade area with the European Union.

In mid-September, the State Statistics Service has worsened the estimate of GDP decline in Q2 from 1.1% to 1.3% y/y. Adjusted for the seasonal factor, GDP shrank 0.5% q/q in Q2. Nominal GDP made UAH 351.896bn in Q2. In Q1, GDP declined by 1.1% y/y. Ukraine's GDP growth in 2012 slowed to 0.2% from 5.2% in 2011.

Standard & Poor's expects a GDP growth rate of 1% in Ukraine in 2013 under optimistic scenario. Under the pessimistic scenario, GDP growth in Ukraine in 2013 will be around 0.5%.

The EBRD forecasts GDP to decline by 0.5% y/y in 2013. The IMF forecasts zero GDP growth in Ukraine in 2013. Assuming unchanged politics, country’s GDP will remain unchanged compared to 2012-says the IMF. In 2014, the IMF forecasts GDP growth of 2.8%.

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