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National Bank of Ukraine predicts economic growth in 2021 by 3.8%

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The main assumption of the macroeconomic forecast of the National Bank is continued cooperation with the IMF. The macro forecast is also based on the assumption of maintaining adaptive quarantine without super-strict restrictions for business and the gradual spread of vaccination.

National Bank of Ukraine predicts economic growth in 2021 by 3.8%

Consumer inflation in 2021 will be 9.6% and will return to the target level of 5% in the second half of 2022. This is stated in the quarterly report of the National Bank of Ukraine (NBU) for July 2021.

The Ukrainian economy will grow by 3.8% by the end of this year, the NBU predicts. As before, the National Bank expects inflation to peak this fall amid high world prices, further recovery in domestic demand and a low benchmark, after which it will begin to decline.

At the end of 2021, the indicator will be 9.6%, and in the second half of 2022, it will return to the target of 5%. This will be facilitated by a tightening of monetary policy, high yields, a correction in world commodity prices and the exhaustion of the effects of last year's low comparison base.

The economy is recovering thanks to an increase in both domestic and foreign demand. The main driver of growth will be private consumption, which will rise by 8%. This factor, together with favorable conditions for foreign trade, compensate for the losses of the economy due to increased quarantine in winter and spring and the effect of other temporary factors.

The proliferation of vaccinations will allow faster recovery of the services and passenger transport sectors most affected by the quarantine. Economic activity will also pick up on strong external demand.

Favorable trading conditions will improve the financial condition of exporters and restore investment activity. In 2022-2023, Ukraine's economy will grow by about 4% annually.

In addition to high private consumption, this will be facilitated by a significant demand for Ukrainian export goods. The current account will return to a slight deficit in 2021 (0.4% of GDP), which will expand significantly in subsequent years.

The situation on the labor market will improve in the future, primarily due to the economic recovery. Unemployment on average in 2021 will drop to 9.1%, and in 2022 it will approach the natural level (8.5%).

Raising social standards and further revitalizing the economy will support an increase in citizens' incomes. Nominal wages in 2021 will grow by 18.8% and by 10.8% next year, while real wages will grow by 8.7% and 3.9%, respectively.

The main assumption of the macroeconomic forecast of the National Bank is continued cooperation with the IMF.

Low and stable inflation is one of the main prerequisites for sustainable economic development in the long term, therefore the central banks of the world often apply inflation targeting (IT) policies aimed at achieving price stability.

The design of IT policies is often different for each individual country. For Ukraine, the target range is 5% ± 1 volt. etc., that is, the National Bank makes a decision on monetary policy, focusing primarily on returning or keeping inflation in the appropriate range over a horizon of 9-18 months.

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