14:48 13.03.2021

S&P expects Ukraine's economic growth by 4% in 2021

3 min read
S&P expects Ukraine's economic growth by 4% in 2021

S&P Global Ratings, an international rating agency, expects Ukraine's real gross domestic product (GDP) to grow by 4% in 2021 after the expected economic decline by 4.2% in 2020, with a further slowdown in growth to 3.5% in 2022.

"We forecast real GDP growth in Ukraine of 4% in 2021, compared with a 4.2% contraction in 2020 following a gradual stabilization of the public health situation and a recovery in demand," S&P said in a message on confirmation of Ukraine's rating at "B/B" with a stable outlook posted on Saturday night.

The agency predicts a strong economic recovery in the second quarter. According to analysts, an inflow of remittances and government support, including an increase in pensions, should support the recovery in consumption.

At the same time, analysts call the key risk of the forecast uncertainty regarding vaccination, which, firstly, is slowly developing in Ukraine, and secondly, is not supported by half of the population.

"We view the recently imposed sanctions by the Biden administration in the United States against oligarch Ihor Kolomoisky as a decisive renewal of Western support for President Zelensky's reform program," it said.

And although Ukraine is experiencing difficulties in negotiations with the International Monetary Fund (IMF) due to problems in anti-corruption and judicial reform, analysts still predict a tranche in the amount of $0.7 billion in 2021, given the high budget deficit in 2021. In turn, this will allow obtaining additional loans from the World Bank and the European Union in the amount of about $1.5 billion. However, even under these circumstances, S&P expects the government debt to grow by $5-6 billion due to new external and internal borrowings.

The agency notes that investments in 2020 amounted to only 5.3% of GDP in 2020, compared with 12.6% in 2019, and this figure is expected to reach 9.4% of GDP.

According to the agency's estimates, the average annual inflation will accelerate from 2.7% in 2020 to 7.7% this year, and then slow down to 5.5% in 2022.

According to S&P analysts, the hryvnia exchange rate at the end of this year will be about UAH 29.5/$1, 2022 - UAH 30/$1, and in subsequent years it will grow even more and will amount to UAH 30.5/$1 at the end of 2023, 2024 – UAH 31/$1.

The current account deficit of the balance of payments will amount to 1.5% of GDP this year, after a 4.4% surplus in 2020. In the future, a gradual increase in the current account deficit of the balance of payments is expected to reach 2.1% in 2022, 2.6% in 2023 and 3.3% in 2024.

The agency also expects a further gradual increase in reserves: from $28.36 billion last year to $29.98 billion this year, $31 billion next, $32.17 billion in 2023 and $32.32 billion in 2024.

S&P predicts that total government debt to GDP will rise to 62.5% this year from 62.3% in 2020, and gradually drop to 59.1% over the next three years, compared with a peak of 81% in 2016.

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