Ukraine Economic Forecast

GDP likely rebounded strongly in Q2 year on year. Optimism in the private sector remained robust on reviving demand and output. Goods imports expanded at the briskest pace since Q4 2021 in Q2, pointing to firming domestic demand. Merchandise exports also rebounded from Q1’s slump, despite Ukrainian seaborne grain shipments falling over 40% in Q2 from Q1. However, the destruction of the Kakhovka dam in June hit industrial and agricultural activity. In Q3, GDP growth is likely cooling. July’s collapse of the Black Sea Grain Initiative and Russian attacks on Ukrainian ports and grain storage facilities bode ill for exports and infrastructure. That said, the start of the Central Bank’s loosening cycle in July should be aiding activity. Meanwhile, in late August, the U.S. announced a USD 250 million military aid package, while Korea said it would provide USD 394 million for reconstruction and humanitarian relief in 2024.

Inflation ebbed to 11.3% in July (June: 12.8%) on lower food price growth. Average inflation should nearly halve from last year’s peak in 2023 on a high base effect and interest rates. Stronger-than-expected activity, additional infrastructure damage and potential goods shortages pose upside risks. The speed of monetary policy easing is also a factor to watch.