Economy of Ukraine is projected to return to growth in 2016. The recovery will be slow but it is expected to continue despite external and internal risks to growth. Economic growth prospects are becoming lower in China as well as the EU. Domestic risks are also high including escalation of the war in the East of Ukraine as well as delays or termination of reforms.
According to our base scenario real GDP is expected to grow at 1.1% in 2016 and 2.7% in 2017. Growth will be supported by higher domestic demand. Real private final consumption will start recovering due to growth of disposable income and deceleration of inflation. Investments will increase into urgent modernisation projects as well as higher financing of infrastructural projects. We expect that the Government will continue implementation of reforms aimed at the improvement of investment climate. Energy reform is also expected to be continued. Social welfare, education and healthcare reforms are also to be initiated. Macroeconomic stability including single-digit inflation and low exchange rate volatility is expected to remain in 2017.
According to the flash estimate real GDP in 2018 will increase by 3.6% due to stronger domestic demand. Contribution of real net exports to growth will remain negative as demand for Ukrainian exports will remain weak, even though Ukrainian producers will succeed in entering new markets and extending the access to current markets (excluding Russia).