NBU predicts lower inflation in 2023 and recovery in 2024

In 2023, inflation will slow down to 18.7%, and real GDP will grow only marginally – by 0.3%. Inflation will continue to decline in the coming years, and the economy will fully recover primarily due to the expected reduction in security risks. This is the gist of the fresh report from the National Bank of Ukraine.

Inflation will lessen in 2023 due to tight monetary conditions, slowing global inflation, improving logistics, business adaptation and weak consumer demand amid power shortages. A faster reduction of inflation will be prevented by the ongoing war. Economic activity will remain weak in 2023, but will gradually pick up as security risks recede.

Business demonstrated a high level of adaptability in 2022. This factor will support the economy in the future. However, high security risks will still limit economic activity in 2023, and power shortages will continue in 2024. Maintaining the stability of the energy system is an important prerequisite for avoiding a recession in the current year. According to NBU estimates, the economy will grow by 4.1% in 2024, and by another 6.4% in 2025. The basic scenario of the NBU’s macroeconomic forecast does not take into account the possibility of quick implementation of Ukraine’s recovery plan with the corresponding investment inflow, which can significantly accelerate economic growth.

Throughout 2023, unemployment will remain at a high level (about 26%). In the future, it will decrease thanks to the expansion of the demand for labor force against the background of the revival of economic activity. The unemployment rate is expected to decrease to 20% in 2024 and to 17.6% in 2025. Unemployment will remain higher than its natural level, given that the process of restoring production capacities and logistics routes will take a lot of time. International aid will remain the key source of financing budgetary needs in the current year.

Global support, in particular the new program with the IMF, will play a key role in covering budgetary needs, and will also make it possible to maintain international reserves at a sufficiently high level.

The main assumption of this macro forecast is a significant reduction of security risks from the beginning of 2024 thanks to the successful actions of the Ukrainian armed forces.

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