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NBU downgrades forecast for economic growth and retains inflation target

The National Bank of Ukraine downgraded the estimate of the country's gross domestic product (GDP) growth in 2021 from 3.8% to 3.1%, but retained the target consumer inflation rate at 9.6%.

Factors playing against Ukrainian economy

At the same time, the regulator downgraded the economic growth to 3.8% in 2022 from 4%, according to its report.

"Taking into account the figures of the first half of the year, high energy prices, as well as the current aggravation of the epidemic situation, the National Bank has downgraded the forecast for economic growth from 3.8% to 3.1% in 2021," the regulator stated.

The situation is aggravated by the consequences of global supply chains’ disruption. All these factors together will limit the output of Ukrainian industry and restrain the pace of economic recovery next year.

Economic growth forecast for 2022 and 2023

"Taking this into account, the National Bank revised its forecast for GDP growth in 2022 from 4% to 3.8%. In 2023, the economy will grow by 4%," the regulator indicated.

According to the NBU, nominal GDP in 2021 will grow to 5.19 trillion UAH from 4.975 trillion UAH, in 2022—to 5.75 trillion UAH from 5.485 trillion UAH, as stated in the documents of the central bank.

Recall that in 2020, the Ukrainian economy decreased by 4%. This year the forecast of the Ministry of Economy and the government for growth is 4.1%

Inflation target remains at 9.6%

The NBU retained its inflation forecast for 2021 at 9.6% and expects it to return to 5% by the end of 2022.

"The NBU retains its inflation forecast at 9.6% in 2021. <...> Inflation will slow down due to the exhaustion of the effects of the low base of comparison, the maintaining of a favorable situation on the foreign exchange market, and a high yield of agricultural crops. Under the impact of these factors, inflation will slow down to 5% at the end of 2022 and will remain near the target in the future," the message says.

It is planned to curb the growth of consumer prices by tightening monetary policy, in particular, a complete rollback of anti-crisis monetary measures and an increase in the discount rate.

When the price rise to slow down

The NBU believes that the peak in consumer price increase will be in September-October 2021, and in the future the inflation trend will reverse. A more rapid decline in the rate of price rise will be hindered by the long-term maintenance of energy prices and stable consumer demand.

"Considering the effects of these pro-inflationary factors stretched over time, a slowdown in inflation to the target of 5% will require tough monetary conditions from the National Bank during 2022-2023, which was assumed in the July forecast," the NBU added.

In July, the central bank downgraded the inflation forecast for 2021 from 8% (in the April forecast) to 9.6% and expected it to return to 5% by the second half of 2022.

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