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The Forecast of Economic and Social Development of Ukraine for 2016-2019 years

The Forecast of Economic and Social Development of Ukraine for 2016-2019 was approved by the Resolution of the Cabinet of Ministers of Ukraine No. 558 of 5 August 2015 "On Approval of the Forecast of Economic and Social Development of Ukraine for 2016 and the Major Macroeconomic Indicators of Economic and Social Development of Ukraine for 2017-2019".

The estimates for 2016-2019 consider the difficult current situation, as well as a number of assumptions on the external environment and internal conditions of economic development.

As of the end of the first half of the current year the situation is as follows:

  • GDP decline – 15.9% (as estimated by the Ministry of Economic Development and Trade of Ukraine);
  •  exports of goods reduction - 35.4% (including exports to Russia - 2.2 times).

As of the result of the 7 months of the current year the situation is as follows:

  • industrial production decline - 19.5%;
  • agricultural production decline - 3.5%;
  • consumer price inflation – 39.3% (July to December);
  • real wages decline - 23.7%.

In 2015 the Ukrainian economy has suffered from the geopolitical conflict. Barriers for development have been as follows:

  1. destroyed infrastructure and production facilities located in the armed conflict areas;
  2. disrupted intersectoral cooperation, logistic network on subnational level and foreign economic relations;
  3. complicated international relations with the main trading partner (Russian Federation);
  4. lack of energy resources (coal);
  5. significant increase of investment risks and negative expectations of population.

Also cumulative systemic imbalances, resulting in devaluation and inflation shocks, had a significant negative impact on the economy of Ukraine in 2015.

However in recent months the economic situation has stabilized and the positive trend is expected to revive economic activity in the second half of 2015. As a result, the annual GDP decline will slow down to 8.9% and inflation is expected to reach 45.8 percent (December to December).

The forecast for 2016-2019 has been developed under two scenarios.

Scenario 1 macro parameters have been agreed with the International Monetary Fund (IMF) and envisage successful implementation of the economic programme, which will be implemented by the Government of Ukraine with the support from the IMF and other international partners.

Scenario 2, as recommended by the IMF, provides for a pessimistic development compared to scenario 1, due to the fact that economic reforms are implemented against the background of a number of significant challenges and risks. In this regard the growth resumption may take longer and be less pronounced.

In particular, in 2016:

scenario 1 assumes rate of GDP growth is 2%, whereas scenario 2 provides for 0.3% GDP decline;

forecasted nominal GDP is 2,262 UAH bln (under scenario 1) and 2,245.7 UAH bln (under scenario 2);

inflation rate (December to December) is expected to reach 12% (under scenario 1) and 14.7% (under scenario 2).

In accordance with scenario 1 the main determinants of the growth are investment demand and exports. The key drivers of investment demand recovery will be macroeconomic stability and international assistance for the implementation of infrastructure projects and reconstruction of affected areas. Increase of exports will be achieved due to devaluation of currency, Ukraine‘s open access to the European markets and approximation of the national legislation to the EU standards.

In accordance with scenario 2 the impact of exports and investment demand is projected to be positive due to the need for reconstruction of the destroyed regions, incl. recovery with donors’ assistance. However it is not expected increase in consumer spending and general government expenditures.

The forecast of the major macroeconomic indicators for 2017-2019 is also presented in the resolution. To minimize budget risks, the medium-term forecast represents not the maximum achievable benchmarks under the conditions of successful reforms implementation but rather conservative targets according to which average annual GDP growth for 2017-2019 is 3.8% under scenario 1 and 2.3% under scenario 2.

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