Ernst & Young: Ukraine's GDP may rise to 5% by 2016

KYIV, November 7 /Ukrinform/. Economic growth in Ukraine in 2016 may reach 5% due to enhanced exports, according to the Rapid Growth Markets Forecast (RGMF), issued by Ernst & Young (EY), Ukrinform reported citing the EY official website Thursday.

“We forecast GDP growth of 2.5% in 2014 and then a pickup to almost 5% in 2016. However, uncertainty ahead of presidential elections in early 2015 may dampen prospects,” the report reads.

According to EY analysts, weak industrial output and exports continue to delay any recovery. While growth will be little better than zero this year, a gradual recovery in the EU and Russia will enable an export-led return to growth in 2014-16.

“However, the upturn will also require renewed bilateral or multilateral loans to finance the large budget and external deficits,” the EY believes.

It is also noted that having fallen sharply over the past year, inflation will accelerate to some 5%-6% in 2014-17 as the large fiscal deficit (close to 6% of GDP in 2013) forces subsidies on energy and consumer goods to be withdrawn.

“This may help investment by deepening the fall in real interest rates. However, it will delay monetary easing and may put pressure on the Ukrainian hryvnia. The currency is already at risk from the large external deficit and lower reserves that have been whittled away by debt repayments,” the EY said.

However, according to the EY experts, lower imports are helping to contain the large current account deficit, which is set to fall to 7.4% of GDP in 2013. “But heavy debt service costs and lower reserves mean that a new IMF standby or fresh bilateral loans are needed soon. Prospects for greater capital inflows would be enhanced by an association agreement with the EU, although this could exacerbate tensions with Russia,” the report said.

Ernst & Young is a global leader in assurance, tax, transaction and advisory services.

The quarterly EY Rapid Growth Markets Forecast is a macroeconomic forecast co-produced with Oxford Economics and based on Oxford Economics' Global Econometric Model. It aims to fulfill the need for practical and accessible economic forecasts and insights on the development in a list of 25 rapid growth countries around the world, selected on three key criteria - they should be large, both in terms of GDF and demographics, they should be dynamic, rapidly growing countries and of strategic importance for business development. The forecast is based on Oxford Economics' Global Econometric Model and provides analysis of the implications for corporations doing business in rapid growth markets and gives recommendations for decision-makers.

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