Ukraine central bank lowers 2017 GDP growth forecast

The National Bank of Ukraine (NBU) lowered its 2017 GDP forecast to 1.6% yoy growth from 1.9% yoy estimated previously, according to its July 6 press release. The main factors were downwardly revised grain harvest estimates for this year and weaker-than-expected 1H17 performance in services, said the NBU, adding that it anticipates a continued adverse impact of the government’s trade blockade with occupied Donbas.  For 2018, the NBU projects GDP growth accelerating to 3.2% yoy.

Alexander Paraschiy: The colder spring weather seems to be the main reason why the NBU decided to lower its grain harvest forecast. However, it’s not clear how lower temperatures in May have affected crop capacity. So far, agro-producers remain positive about grain harvest prospects, despite the risks. Also, we do not share the NBU’s view about the 1H17 economy. Despite industry dropping 0.7% in 1Q17 due to the trade blockade, GDP was reported to have grown 2.5% yoy for that period, which was far above our expectations of 1.2% yoy.

We anticipate 2017 GDP cooling owing to falling global resource prices and we outlined this scenario in our initial forecast. Put differently, we recognize the risks related to the impact of lower temperatures on the harvest this year but so far we do not see enough reasons to revise our initial forecast. So we are keeping our 2017 GDP projection at 1.9% yoy growth.