In the second half of 2015, economy stabilised and bounced back slightly from lows observed in the first half of the year. Inflation slowed down and exchange rate remained under control. We expect that contraction of economic activity will decelerate further by the end of year. This would reflect adjustment of companies to new operating conditions, a degree of recovery in real incomes since May as well as low statistical base in the end of 2014. Overall, we expect GDP to drop by 11.2% in 2015. In particular, real gross value added in Luhansk and Donetsk oblasts is projected to fall by about 37% in 2015 adding 3.7 percentage points to fall in GDP. GDP for other oblasts is projected to decline by 8.3%.
Real GDP in 2016 is forecasted to grow by 2.2% due to higher domestic demand as well as positive contribution from net real exports. We assume that situation in Eastern Ukraine will become more stable but will remain unresolved damping investment climate. We also assume that cooperation with international donors will continue and agreed reforms will be implemented. This means continued external financing and macroeconomic stability but reforms are unlikely to have major effect on GDP growth.
