Fitch expects weakening of hryvnia, 3.5% GDP growth in 2020
The international rating agency Fitch Ratings expects acceleration of growth of the Ukrainian economy from 3.2% in 2019 to 3.5% in 2020 and 3.8% in 2021 due to private consumption and investment.
"According to official estimates, the economy grew by 3.2% in 2019 and Fitch expects growth of 3.5% in 2020 and 3.8% in 2021 supported by private consumption and investment. The revised version of the land market legislation will be positive for economic growth in the near term through increased consumption (as result of land sales) and expected increase in the demand for credit for the agricultural sector. Nevertheless, the scale of potential investment and productivity improvements will be constrained by limits on foreign investors' participation," the agency said on its website.
"Fitch considers that growth and investment prospects depend on the adequate and timely implementation of reforms to address constrains such as the rule of law, corruption, customs and taxation and law enforcement. As with other emerging markets, downside risks to the growth outlook have increase due to uncertainty of the impact of COVID-19 on global growth and commodity prices," according to the report.
"Fitch considers that the NBU's (the National Bank of Ukraine) easing cycle, lower portfolio inflows, a wider current account deficit and increased global uncertainty will lead to a weaker hryvnia in 2020 relative to 2019. External financing needs will remain high relative to peers (70% of international reserves) due to still large debt repayments and wider current account deficits. External sovereign amortizations (government plus NBU) will rise to $5 billion in 2020 and $4.8 billion in 2021 (external bond repayments averaging $2.4 billion). Fitch expects the current account deficit to widen to 3% and 4% of GDP in 2020 and 2021, respectively, from a low 0.7% in 2019, driven by continued import growth boosted by domestic demand and reduced gas transit fees," the document states.
"As inflationary pressures remain subdued (3.2% in January), Fitch expects inflation to average 4.6% in 2020 and 5.3% in 2021," Fitch experts said.
"Risks from international financial market volatility, delays in the IMF program approval or stronger-than-anticipated domestic demand pressures will determine the future pace and scale of the easing cycle. Fiscal risks for 2020 stem from weaker revenue growth due to a stronger than budgeted hryvnia and lower privatization revenues in addition to still to be defined social expenditure increases announced by the incoming authorities. Receipts from the Naftogaz arbitration award will help cushion government revenues and provide room to accommodate expenditure commitments under the 2020 budget, targeting a 2.1% of GDP deficit," Fitch stated.