The IMF has worsened the GDP forecast from 0.4% y/y growth to 0.3% contraction in 2013, the fund has announced in its latest report. For 2014, the GDP growth forecast was lowered to 1% from earlier 1.5%. The inflation is forecasted at 0% in 2013 (earlier 0.5%) and 1.9% in 2014 (earlier 4.7%) The fund's experts noted that Ukraine has been in recession since mid-2012 and that situation in the country remains challenging. The IMF notes that GDP contraction of 1¼ % y/y in Jan-Sep mirrors worse demand for Ukrainian exports and falling investments. The inflation remained flat, due to declining food prices and tight monetary policy. Weak external demand and reduced competitiveness kept the trailing 12-month current account deficit elevated at about 8% of GDP by end-September despite a significant reduction in natural gas imports. The high current account deficit within less favorable international market environment pressured international reserves, which fell below the equivalent of 2½ months of imports by end-October 2013 . The IMF notes that taking to the account current planned policies, modest growth may return in 2014, driven by improvements in external demand, strong grain exports, and continuing consumption expansion. At the same time, the Fund notes that this outlook faces significant risks, originating from the inconsistent policy mix and heightened political and economic uncertainty in recent weeks. The IMF believes that Ukraine would benefit from a more flexible exchange rate policy, tighter fiscal stance, an increase in domestic gas and heating tariffs, and a restart of structural reforms. In November, the EBRD has worsened the GDP growth forecast for 2014 by 1pps to 1.5%. The EBRD points out that Ukrainian economy has been contracting since Q3/2012, affected by the tough external environment, poor business climate and domestic policy uncertainty. Worse external demand and lower steel and other commodity prices led to a reduction of machine building, steel and chemicals sectors. In addition, construction industry continues to stagnate, as investment activity remains subdued. Credit activity remains very weak as real interest rates in the local currency hovered at around 20% and the National Bank of Ukraine (NBU) continues to expand its control over the movement of capital. Although, the recession is likely to end in Q4/2013 due to favorable base effects and near- record harvest, further recovery is likely to be very slow unless the authorities begin a program of reform, the EBRD believes. At the same time, the external risks remain very high, as the reserves of the NBU reduced and government access to international capital markets is quite limited, the report sums up. Fitch predicts GDP growth of 2.2%, annual average inflation of 5.0% and nominal GDP of USD 178.7bn in 2014, the agency has announced. For 2013, the agency predicts Ukraine's GDP growth level at 0%, nominal GDP of USD 176.9bn and annual average inflation rate of 1.5%. 2010 2011 2012 2013 2014 Real economy (percent change, unless otherwise indicated) Nominal GDP (billions of Ukrainian hryvnias) 1,083 1,302 1,409 1,432 1,503 Real GDP 4.1 5.2 0.2 -0.3 1 GDP deflator 13.8 14.3 8 2 4 Unemployment rate (ILO definition; percent) 8.1 7.9 7.5 8 8 Consumer prices (period average) 9.4 8 0.6 -0.3 1.6 Core inflation (period average) 1/ 8.6 7.7 3.3 0.2 1.4 Nominal monthly wages (average) 17.7 17.5 14.9 9 5.6 Real monthly wages (average) 7.6 8.8 14.2 9.3 3.9 Public finance (percent of GDP) General government balance 2/ -5.8 -2.8 -4.5 -5.7 -4.6 Overall balance (including Naftogaz operational deficit) -7.4 -4.3 -5.5 -7.7 -6.6 Structural general government balance -3.7 -3 -4.5 -4.1 -4.1 Public debt (end of period) 3/ 40.5 36.8 37.4 41.3 44.7 Money and credit (end of period, percent change) Base money 15.8 6.3 6.4 14.7 12.9 Broad money 22.7 14.7 12.8 16.8 14.1 Credit to nongovernment 1.1 9.5 2.2 7.8 8.2 Interbank overnight rate (annual average, percent) 4/ 2 5.8 10.8 3.3 … Balance of payments (percent of GDP) Current account balance -2.2 -6.3 -8.1 -8.3 -8.2 Foreign direct investment 4.2 4.3 3.8 2.4 2.4 Gross reserves (end of period, billions of U.S. dollars) 34.6 31.8 24.5 18.5 11.2 Months of next year's imports of goods and services 4.2 3.7 3 2.2 1.3 Percent of short-term debt (remaining maturity) 73.3 55.4 40 32.3 18.8 External debt (percent of GDP) 86 77.2 76.6 76.7 75.3 Goods exports (annual volume change in percent) 9.3 7.1 2 -7.4 3.9 Goods imports (annual volume change in percent) 15 22.6 2.2 -5.5 2.6 Goods terms of trade (percent change) 0.3 7.6 -3.2 2.2 0.2 Exchange rate Hryvnia per U.S. dollar (end of period) 8 8 8 … … Sources: Ukrainian Authorities; and IMF staff estimates. 1/ Excludes unprocessed food, fuel, and administrative services. 2/ The general government includes the central and local governments and the social funds. In 2013, the general government deficit includes recognized arrears (1.3 percent of GDP). 3/ Government and government-guaranteed debt (includes debt to IMF). 4/ For 2013, average of rates for the first ten months.
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