Macro outlook: After contracting by a relatively mild 5.5% in 2020 the economy is expected to return to 3.5% growth in 2021. However, the range of predictions is wide, running from only 1.5% to 5%, as the country remains vulnerable to a number of risks beyond its control.

And the crisis is weighing on the main economic indicators that were starting to improve in 2020: inflation pressure reappeared in November, while industrial production sank again. The National Bank of Ukraine (NBU) has been cutting interest rates for several years now but has now paused the easing and kept rates on hold at its first meeting in January at 6%. The NBU said it maybe forced to start tighten again soon if inflationary pressures remain high that would strangle the nascent growth. The hryvnia will also continue to fall against the dollar to reach UAH30 in 2021.

Budget outlook: The Rada has passed a 2021 budget with a 5.5% of GDP deficit. However, this will prove extremely hard to fund without a new IMF deal.

But the really big issue in 2021 is that Ukraine has $16bn of debt redemptions due, of which $11bn fall in the third quarter, which it currently cannot afford to pay without significantly running down its currency reserves. While the government can muddle through the first half of the year it will have to strike a new deal with the IMF in the summer to tap the remaining $3.9bn left in its Stand-by Agreement (SBA) or face a crisis. Ukraine’s form is it usually pulls a deal out of its hat at the last minute when it has to.

Real Economy outlook: The real economy was making good progress in 2019 and started to recover in the second half of 2020, but industry and agriculture are still struggling and won't have an easier year in 2021 either.

Banking sector outlook: Banks remain one of the bright spots in the Ukrainian economy. Following the clean-up of the last few years they went into the coronacrisis in relative robust health and have weathered the storm well. Banking profitability had already returned to 2019 levels by the autumn of 2020 and while there will be no boom in 2021 they should continue to grow, albeit at a slower speed.

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