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  • New forecast: Ukraine's GDP will grow by 4.3% in 2021

    10.03.2021

    Ukraine's economy will expand by 4.3%. That is the result of a January economic forecast for 2021 by the German Economic Team (GET) and the Institute for Economic Research and Policy Consulting (IER), Kyiv.

    The global pandemic significantly affected the Ukrainian economy in 2020. However, due to past economic reforms, the country faced this crisis much better prepared than past ones. As a result, real GDP declined much less than in any previous crises. In particular, reforms ensuring a flexible exchange rate regime, sound banking system, inflation targeting policy by the National Bank and fiscal consolidation of the previous years are worth mentioning. Moreover, geographic diversification of exports contributed positively to the resistance of the economy.

    For 2021, we expect private consumption on the demand side and industry, transport, agriculture on the supply side to boost the recovery. That will be supported by reviving economies of partner countries and increasing trade flows. However, uncertainty remains about the pandemic, a delayed vaccination programme, IMF cooperation, and political risks.

    Main results of the study:

    • After the pandemic, economic recovery in sight: GDP is estimated to increase by 4.3% in 2021. Private consumption is the primary driver of economic growth on the demand side. On the supply side, after a bad harvest in 2020, the agricultural sector will positively contribute to the economic recovery.
    • Private consumption will drive economic growth: Private consumption is expected to increase by 5.9%in 2021, while investment will grow by 8.9%. Both exports and imports will recover. Net exports will contribute negatively to GDP due to higher import growth.
    • Recovery of industry, transport and agricultural sector: A gradual lifting of Covid-related restrictions will foster growth in the transport sector and support external and domestic demand to drive the industry sector's recovery. Agriculture is expected to grow by 5% in 2021 after the bad harvest in 2020 due to weather conditions.
    • Inflation is expected to accelerate in 2021: After inflation below the National Bank's target range in 2020, an upward tendency is currently observable due to higher prices for food and services. Moreover, economic recovery, minimum wage increases and expansionary fiscal policy will strengthen inflation pressure. However, the National Bank is expected to take necessary steps to return the inflation rate to the target range between 4% and 6% in the medium term.
    • Current account surplus to remain in 2021: After a large current account surplus in 2020, we forecast a smaller surplus of 2% of GDP in 2021. The trade balance deficit is expected to remain close to the 2020 level, while remittances will increase.
    • Pre-crisis macroeconomic stabilisation pays off: Ukraine has faced this crisis much better prepared than past ones. In particular, ensuring a flexible exchange rate, inflation targeting policy by the National Bank, and fiscal consolidation supported Ukraine during the crisis and allowed entering the growth path. However, risks regarding further waves of the pandemic, a delayed vaccination programme and delayed cooperation with the IMF will remain in 2021.

    Robert Kirchner, Deputy Team Leader of the German Economic Team:

    "The pandemic posed significant economic challenges to all countries around the globe, with Ukraine being no exception. Unlike in previous crises, macro-financial stability prevailed in Ukraine. This is, in our view, the success of previous macroeconomic economic reforms in the country, and shows their benefits directly."

    Vitaliy Kravchuk, Senior Research Fellow at IER Kyiv:

    "Our current estimate of real GDP growth at 4.3% in 2021 is conditional on a set of assumptions. They include the continued cooperation with the IMF, which provides access to concessional lending to Ukraine. That, in turn, requires the continuation of reforms, sound monetary and sustainable fiscal policies."

    Veronika Movchan, Academic Director at IER Kyiv:

    "The economic recovery of Ukraine's trade partners and favourable global prices will stimulate the growth of exports allowing to maintain the moderate trade deficit. That coupled with the strong inflow of remittances is expected to result in the still positive current account balance in 2021."

    Link to the Policy Briefing 

    German Economic Team: Financed by the Federal Ministry for Economic Affairs and Energy, the German Economic Team(GET) advises the governments of Moldova, Georgia, Ukraine, Belarus and Uzbekistan on economic policy matters. Furthermore, GET covers specific topics in other countries, such as Armenia. Berlin Economics has been commissioned with the implementation of the consultancy.

    Institute for Economic Research and Policy Consulting (IER) is the leading Ukrainian analytical think tank focusing on economic research and policy advice. The IER was founded in October 1999 by top-ranking Ukrainian politicians and the German Advisory Group Ukraine, the GET's predecessor organisation.

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