Ukraine central bank adjusts its 2017 macro forecasts on blockade factor
22 March 2017
Ukraine’s central bank, the NBU, has revised its forecasts of the key 2017 parameters of the Ukrainian economy to account for the trade blockade of occupied Donbas, which the government introduced on March 16. The bank’s initial forecast, released in January, was also adjusted to account for better global commodity prices.
The NBU downgraded Ukraine’s 2017 real GDP growth forecast to 1.9% (from 2.8%), and worsened its forecast of the current account deficit to USD 4.3 bln (from USD 3.4 bln), according to its March 21 release. The NBU also kept its CPI forecast for the year unchanged at 9.1% YTD.
The NBU also stated that it is going to mitigate a possible negative effect on the Ukrainian currency from the blockade and respective widening of the current account deficit. In particular, the NBU is going to slightly decrease its purchases of foreign currency on the market, which will result in a smaller amount of end-2017 gross international reserves (USD 20.8 mln, down from its initial forecast of USD 21.3 bln).
Alexander Paraschiy: The effect of the trade blockade seems to be much less apocalyptic than Ukrainian power brokers tried to show in February and early March, before the president ultimately decided to take charge of the blockade himself. In general, we agree with the NBU calculations of the effect. We only disagree with its position that the blockade won’t have any impact on consumer inflation – we estimate it will add about 0.4pp to CPI this year, which will be mostly a result of higher electricity prices in Ukraine (preliminary estimates of the power regulator show that the wholesale electricity price will be 5.15% higher in 2017, as compared to December’s estimates).
All in all, we see this year’s real GDP growth at 1.9% (compared to 2.1% that we forecasted earlier) and consumer inflation at 8.2% YTD (from 7.8% we estimated earlier). We are keeping unchanged our forecast of Ukraine’s current account deficit of USD 5.1 bln and average UAH/USD exchange rate of 28.0.
