Expected trends for the Ukrainian economy in 2023
Nov 30, 2022
5 min read
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Next year, the economic condition of our state will largely depend on assistance from international partners, as spending on the army and social protection of the population sets records. The government is preparing for a difficult recovery after the first year of a full-scale war, a significant reduction in the economy and destruction of infrastructure. There is no doubt that 2023 will be a difficult year, but we should expect some positive trends, and in this blog we will explore which ones.
According to the Ministry of Economy of Ukraine, the drop in GDP for 9 months of this year is 30%. It is impossible to overcome such a sharp decline within a short period of time. The World Bank has changed its forecast for Ukraine's recovery next year from 2.1% to 3.3%. The Ministry of Finance has several options — from pessimistic to optimistic, but the realistic option assumes about 5% GDP recovery. At the same time, the inflation rate is expected to be above 20% again. Meanwhile, the budget for 2023 is adopted with an expected inflation rate of 30%. This forecast is related to the disruption of supply routes, the destruction of infrastructure and industrial production.
CPI (as of the end of the period, % y/y) and inflation targets. Source: NBU
According to Forbes, a quarter of the representatives of the European Business Association expect the economic situation to worsen, half of them expect a partial improvement, and 20% even plan to invest more than $3 million in their projects. Among the factors that most disturb entrepreneurs, the first three lines are: war and its consequences, high prices for raw materials and supplies, as well as lack of demand. It is quite expected that as the intensity of military operations decreases, business activity will increase, because conditions will be favorable for it.
The October inflation report from the NBU expects the economy to return to growth in the range of 4-5% over the next two years. Such conclusions are based on the expectation of liberated territories of the country from Russian invaders, adaptation of businesses to work in war conditions and opening of ports for the “grain corridor”. Nevertheless, there are also factors that are expected to hinder the pace of the country's economic recovery: the large migration of the working-age population and the destruction of industrial capacities.
The unemployment rate is projected to be 30% this year, but will fall as economic activity recovers. Wages have fallen by a quarter this year, taking inflation into account, but next year they will exceed the prewar level and grow by a third. In 2024, wages will increase by roughly the same amount — 28%. The budget deficit this year was a quarter of GDP, and it is expected to decline and be no more than 12% of GDP in 2024.
In the version of the budget adopted by the Verkhovna Rada, the dollar exchange rate at the end of the year is projected at 45.8 UAH, while the first version of the budget saw it at 50 UAH. The average annual price of the currency remains at 42.2 UAH. Also in the final version of the budget, the state revenues increased by 50 billion UAH and expenditures by 66.8 billion UAH, while the level of expected inflation decreased from 30% to 28%. Such values are explained by greater confidence in the support of international partners.
The next military year will indeed be far from a normal economic year, but it is unlikely to be a bigger shock than the start of a full-scale invasion. A rapid recovery is less likely, especially if hostilities continue. For example, the EBRD in May projected economic growth of 25% in 2023, but the latest report cut that rate to 8%. The government looks at this from a realistic point of view, so it has not even planned money in the budget for the next parliamentary elections. Almost all economic indicators depend on the military situation, so we should be prepared for all eventualities.
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