Despite the fact that in Ukraine it is not possible to normalize the situation with the spread of coronavirus and we have not even started importing the vaccine against COVID-19 in the National Bank believe that in 2021 the economy will almost fully compensate for corona crisis losses and return to growth at about 4, 2%. This is stated in the quarterly Inflation Report for January 2021.
The report says that in the first half of 2021, inflation will temporarily accelerate and go beyond the target range of 5% ± 1. The National Bank will use the flexibility of the inflation targeting regime, allowing a temporary deviation of inflation from the target for faster economic recovery after the corona crisis. As a result, after a reduction of 4.4% in 2020, the Ukrainian economy will return to growth of about 4.2% in 2021 and 4% in the medium term.
The main driver of GDP growth will remain private consumption, which will grow due to a further increase in incomes. The recovery of the economy will also be influenced by the intensification of investment activity against the background of the growth of the world economy and the improvement of business sentiment.
It is expected the current account of the balance of payments after last year’s significant surplus in 2021 will return to the deficit with its further expansion in the coming years (up to 4.9% of GDP in 2023). This will be due to the growth of consumer demand and the resumption of investment activity. This year, after the decline in trade in the previous year due to the introduction of anti-epidemic restrictions, exports and imports are expected to return to pre-crisis levels, and in 2022-2023 – their gradual growth.
Under the influence of low last year’s yields, rising energy prices and further growth in consumer demand, prices will accelerate. The growth rate of administratively regulated prices will remain high due to higher excise taxes on tobacco products and higher electricity prices. An additional pro-inflation factor will be an increase in the minimum wage (by 20% in January and another 8.3% in December). According to the results of 2021, inflation will be 7%, and in 2022-2023 – will be fixed at the target level of 5%.
Referring to these developments, the National Bank forecasts an increase in the discount rate in 2021. However, its level will remain below neutral during 2021 and most of 2022. At the same time, if the increase in fundamental pressure on prices from consumer demand is not offset by other factors, and inflation expectations continue to deteriorate, the National Bank will raise the discount rate. The extent of the increase will depend on the intensity of the impact of these factors, the report says.
The situation on the labor market is also expected to improve further. The unemployment rate after the increase in the IV quarter of 2020 against the background of increasing morbidity and the introduction of new quarantine restrictions in 2021 will gradually decrease (to 9.1%). At the same time, the rapid growth of business costs will slow down this process. Further economic recovery and rising social standards will support the growth of citizens’ incomes. Nominal salary in 2021 will increase by 16.6% and 9.3% in the next. Real – by 8.3% and 3.6%, respectively.
The updated macroeconomic forecast is based on the assumption of continued cooperation with the IMF and assumes the absence of strict quarantine restrictions in the future both in Ukraine and in the world.
Translated by Herasymiuk Lilya