Fitch Ratings predicts that Ukraine's GDP will grow by 1.1% in 2016, Fitch has reported.

This is 0.1 percentage points (p.p.) higher than Fitch projected in May 2016.

GDP growth is forecast to accelerate to 2.5% in 2017 and 3% in 2018 and this is 0.5 p.p. higher for the two figures than anticipated in May 2016.

"Political risks remain significant, but near-term political volatility has eased… Privatization has yet to gain momentum. The unresolved conflict in eastern Ukraine will continue to weigh on growth performance and expectations," Fitch said.

The banking sector has stabilized, but is weak with low capitalization levels and non-performing loans of over 50%, and poses a risk to economic stability and constrains economic recovery.

Inflation is forecast to average 14.9% in 2016, down from 48.5% in 2015. In 2017 it would be 9.5% and in 2018 – 8%, while earlier Fitch forecasted 15% for 2016, 11% for 2017 and 11% for 2018.

General government debt is high, and Fitch forecasts debt to increase to 74% of GDP (89% including guarantees) in 2016, from 67% in 2015. In 2017 the figure will be 72.6% and in 2018 – 69.9% of GDP, while earlier Fitch predicted that it would be 68.4% (2016), 65% (2017) and 62% (2018) of GDP.

After a sharp narrowing in the general government deficit in 2015, the challenge for authorities is to anchor fiscal gains, taking advantage of external bond debt rescheduling, Fitch said.

The current account deficit is expected to widen moderately to 2.5% of GDP in 2016 from 0.2% in 2015 and approach 3% over the forecast period to 2018.

"The macroeconomic policy framework has been strengthened through increased exchange rate flexibility and tight monetary policy. Macroeconomic stability has improved, despite the delay in completing the second EFF review, as reflected by rapidly declining inflation, slower currency depreciation and a mild growth recovery," Fitch said.