Country Economic Forecasts > Ukraine

Despite an apparent return to quarterly growthin Q3 with GDP estimated by the central bank to have risen 1% which suggestsresilience of agriculture and western-based service industries to energy pricerises and separatist actions (felt mainly in the east), we now forecast GDP willfall by 11% in 2015 overall. And growth is seen at just 3% a year in 2016-18,held down by conflict-related infrastructure damage, soft global demand formain industrial products and initial hits to investment and consumption fromIMF reforms. Inflation will be above 50% this year despite price falls earlyin Q3 after removal of energy subsidies that will force more industrial downsizing.Lower inflation in Q3 has enabled sharp cuts in main interest rates, whichremain negative in real terms. Although inflation has eroded much of the gainin competitiveness from UAH depreciation in 2014-15, exports will return togrowth ahead of imports next year, moving the current account back into surplusand encouraging a recovery of investment. A more stable UAH in 2016-17 willkeep inflation on track to fall below 10% in 2018. Risks to the forecast remainhigh but are becoming more balanced, with the IMF set to make its nextdisbursement in Q4, after impressive fiscal restraint this year, and the rebelpeace-deal making progress as Russian foreign policy concerns shift to theMiddle East.