Ukrainian economy could return to pre-war levels not earlier than in 2026

According to our core scenario* nominal GDP of Ukraine is estimated as $145 bn (muсh lower from $200 bn in 2021) and the real GDP could decrease by 34% in 2022. Looking forward, the Ukrainian economy will be developing between $130-160 bn in 2023-2024 and recieving great amounts of financial support from external funds for budget finacing and infrastructure reconstruction.

Even though the new wave of the war escalation is not in our core scenario we see Ukrainian economy to return to pre-war levels not earlier than in 2026. Besides, Ukraine started recovering in the situation of three FX rates on the money market: official (the NBU), banking and cash market. The NBU will hold PEG policy till the end of active military actions on the territory of Ukraine in II-III quarter of 2023, according to our view. But the hike in official USDUAH rate is very likely within next 6 months.

Military spendings increased shaprly from 6-9% to 30-40% per month in government budget structure. This tendency won’t end till the war continues in Ukraine. Budget deficit has been increasing since March, and reached 348 bn UAH (or $11.9 bn) at the end of June. Ministry of Finance did good job with creditors and has stabilizet government budget in spending section. We assume that the budget deficit would not exceed 500 bn UAH till December when it could increase to 800 bn UAH (or $21.9 bn) due to a traditional government spendings hike. If so the budget deficit could represent 17% of Ukraine’s GDP.

In social segment the war led to the huge 35-percentage spike in unemployment rate. Significant share of Ukrainian population has lost their jobs due to the deep economic turmoil and migration processes. If we compare the situation in Ukraine to the similar in ex-Yugoslavia region, and the NBU also mentioned that in their reports, unemployment will decrease slowly and keep being at high levels due to the long-term consequences from war. In addition we see a significant risk of depressed ares formation near frontline zone.

We see different factors that could lead to the improving in recovery speed of Ukraine. The victory of Ukraine and russia-belarus capitulation, of course, among them. Here’s the list:

  • Increase in financial and military support to Ukraine from the main government-partners and IFO’s.
  • Return of the substantial part of forced migrant from abroad.
  • Special economic zones foundation (preferential taxation).
  • Raise in world commodity prices, especially grains and oilseeds.
  • End of hawkish monetary policy in the US and Europe.

* core scenario includes the end of active military actions on the 80% of territory of Ukraine in II quarter of 2023. Where the end of active military actions include permanent missile attack ceasefire of the territory of Ukraine out of frontline zone, no dislocation of russian missile army or artillery units on the territory of belarus and active process of miltilateral diplomatic negotiations.

Artem Shcherbyna, chief investment officer, head of R&D Capital Times

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