Ukraine Economic Forecast

Following Q4’s deterioration, GDP likely fell at a slower year-on-year pace in Q1 2023. In March, improvements in the energy sector supported activity in the retail, services and industrial sectors, according to the National Bank’s monthly assessment. Strengthening consumer sentiment through March—exceeding Q4’s figure and likely boosted by softening price pressures throughout the quarter—will have aided spending despite falling credit demand. Merchandise exports also registered the first growth reading since the start of the war and the highest overall figure since September 2021. Higher commodity prices for Ukrainian exports will have also boosted the current account. Meanwhile, foreign trade is facing growing pressure from the contested negotiations on extending the Black Sea Grain Initiative past 18 May and grain export bans from several EU members imposed in late April.

Inflation eased to 21.3% in March (February: 24.9%) on softer food and transport price pressures. In 2023, lower commodity prices, frail demand and elevated interest rates should help bring the headline rate down from current levels. That said, inflation will exceed the Central Bank’s 5.0% target due to spillover from the war. Energy and goods shortages pose upside risks.