What awaits Ukraine's economy in next two years - EC's forecast
Despite the full-scale Russian invasion, Ukraine demonstrated economic resilience in 2023, which allows forecasting its economic growth in the coming years - up to 3.7% and 6.1% in the next and 2025, respectively.
According to Ukrinform, this is stated in the autumn economic forecast for the EU countries, as well as for Ukraine and other EU candidate countries, the full text of which is published on the European Commission's website.
Despite the enormous challenges posed by Russia's war of aggression, Ukraine's economy demonstrated outstanding resilience in 2023, thanks to an exceptional harvest, government stimulus backed by support from international partners, and the authorities' commitment to macroeconomic stability. Growth is projected to reach 3.7% in 2024 and 6.1% in 2025, the report said.
As per the forecast, the main drivers of this growth will be private consumption and public investment, particularly in the process of rebuilding and restoring the country.
The European Commission (EC) estimates that inflation in Ukraine declined rapidly in 2023, from an annualized rate of 26.6% in December 2022 to 7.1% in September 2023. At the same time, the annual inflation rate is projected to decline further to 7.6% in 2025. This is expected to be due to reduced pressure on the production sector and flexible monetary policy.
As noted in the European forecast, the resilience of the Ukrainian economy in 2023 was "surprising" given Russia's ongoing attacks on critical infrastructure and supply chains.
These better-than-expected results emphasize the adaptability and resilience of Ukrainian consumers and Ukrainian businesses to the challenges posed by the war situation, and this is reflected in the growth of confidence indicators. In addition, the extension of the Grain Agreement until July 2023, the EU's solidarity lanes and an exceptionally good harvest supported economic activity, the document says.
According to the forecast, Ukraine's GDP growth in 2023 may reach 4.8%, which is significantly higher than the figures contained in the EC's spring forecast.
Some stabilization is also observed in the labor market in Ukraine, due to relatively low migration and partial return of displaced persons to their places of residence. At the same time, the still large number of displaced persons remains a risk factor for the labor market and leads to labor shortages in certain sectors of the economy and in the country's regions.
As noted, this forecast is made under conditions of high uncertainty, taking into account existing risks. An escalation of the military conflict, in addition to additional suffering for people in Ukraine, could lead to further price increases, further disruption of supply chains, and losses in the country's production capacity.
In the best-case scenario, if the conditions for rebuilding the country are achieved earlier than expected, this will have a positive impact on investment inflows and export activity.
As reported, since the beginning of Russia's military invasion, the EU has continued to provide Ukraine with substantial political, economic, financial, humanitarian and military support. Since February 2022, the EU and its member states have provided more than EUR 82 billion in assistance to Ukraine.