Ukraine Economic Forecast

In Q1 2023, GDP likely declined at a softer year-on-year pace. Strengthening consumer sentiment, falling inflation and improvements in the energy sector in March supported activity. Merchandise exports also rebounded in March. In Q2, the economy is likely returning to growth. In April, business expectations were optimistic for the first time since October 2021, with an improving outlook for trade and industrial activity. Less positively, credit demand weakened further in April, boding ill for spending. Additionally, despite the renewal of the Black Sea Grain Initiative on 17 May, Ukrainian exports in May hit the lowest level since August 2022, when the Initiative was launched. On 30 May, a staff-level agreement was reached with the IMF on the first review of the Extended Fund Facility program, aiming to support economic and financial stability, debt sustainability and EU accession. The agreement will unlock a USD 900 million disbursement

Inflation fell to a one-year low of 17.9% in April (March: 21.3%) on softer food and transport price growth. In 2023, a strong base effect, muted demand and elevated interest rates should keep a lid on prices. That said, inflation will exceed the Central Bank’s 5.0% target due to spillovers from the war. Commodity price volatility and goods shortages pose upside risks.