Ukraine country report Sept 2023 - September, 2023

September 6, 2023

Ukraine's economic trajectory is currently shaped by a combination of GDP growth expectations, military strategy, and various economic developments. The nation continues to navigate through challenges posed by ongoing conflict with Russia and geopolitical dynamics while striving to maintain economic stability and attract investments.

The Ukrainian government is optimistic about the country's GDP growth, anticipating a 3.2% expansion this year. The Ministry of Economy highlights the recovery of economic growth following significant losses, with the nation adapting to the challenges posed by the ongoing war. Despite various obstacles, the forecasted GDP growth of 3.2% for 2023 remains consistent. However, the economic department emphasizes that the war's continuation presents inherent risks to this projection.

Looking ahead to 2024, accelerated GDP growth is envisioned, with expectations of approximately 5%. This positive outlook is contingent on several factors, including the resolution of the ongoing conflict, the return of migrants, restoration of port infrastructure, active reform and reconstruction efforts, and increased investment inflows.

The National Bank of Ukraine (NBU) echoes the sentiment of economic growth, forecasting a 2.9% increase in GDP for the current year. The NBU acknowledges the positive impact of military aid to Ukraine on Western economies. As the security situation is projected to improve in mid-2024, the NBU anticipates an acceleration of economic growth in the coming years. Projections for 2024 and 2025 stand at 3.5% and 6.8% real GDP growth, respectively.

The NBU's inflation forecast indicates a gradual slowdown, with consumer inflation expected to decrease to 10.6% in 2023 and further decline in subsequent years. These economic projections reflect the bank's commitment to maintaining stability and fostering a conducive environment for sustainable growth.

Ukraine's military operations continue to evolve, with the counteroffensive entering a new phase. The Armed Forces of Ukraine (AFU) have made progress in southern regions, breaking through Russia's initial defensive line to reach the Sea of Azov. Notably, consultations between Nato military leaders and Ukraine's high command have influenced strategic decisions, focusing efforts on the southern front.

The war's impact on Ukraine's economy and manpower is evident. As casualty rates rise, Ukraine faces a manpower shortage, prompting measures to enhance conscription and military service recruitment. President Volodymyr Zelenskiy's actions reflect a commitment to bolster the nation's military capabilities and combat draft dodging.

On the economic front, Ukraine's agricultural exports demonstrate resilience, with a 16% increase in exports of agricultural goods in the first half of 2023. Despite challenges in grain exports and logistics, the EU, Asia, and Africa remain key markets for Ukrainian agricultural products.

In the realm of energy, Ukraine has signalled its intent not to renew the contract for the transit of Russian gas to the EU beyond 2024. As geopolitical dynamics shift, Ukraine is exploring alternative energy sources and partnerships to enhance energy security.

In terms of foreign investments, Ukraine is witnessing renewed interest from private investors. Companies such as Nestlé, Kingspan, Bayer AG, and Fixit are making significant investments, reflecting confidence in Ukraine's economic prospects.

Amidst these multifaceted developments, Ukraine's economic landscape remains intricate, driven by a blend of growth projections, military strategy, and endeavors to foster economic resilience and stability.

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