ICU updated macro forecast for 2024: acceleration of inflation, slowdown of GDP growth, controlled course

According to the updated macro forecast of the ICU investment group, Ukraine’s economy will grow by 4% in 2024, inflation will accelerate to 8%, and the hryvnia exchange rate is expected to be at UAH 42.6/$. About this writes Forbes.

After strong GDP growth in the first quarter, growth will slow significantly in the second half of 2024 due to power problems, labor shortages, and declining harvests. According to the ICU, annual GDP growth will be 4%, slightly down from the previous forecast of 4.1%. The main drivers of growth remain domestic private consumption and the recovery of exports thanks to the operation of the maritime transport corridor.

The acceleration of inflation turned out to be somewhat faster than expected. At the end of the year, inflation is forecast in the range of 7-8%, while the April ICU forecast predicted 6.4%. A reduction in the discount rate in the coming months is considered unlikely by the ICU due to the acceleration of inflation and recent fluctuations in the foreign exchange market.

International aid remains critically important both for financing the budget and for stabilizing the foreign exchange market. It is expected that in the second half of the year, Ukraine will receive more international aid than in the first, which will increase gold and foreign exchange reserves to $43.7 billion (the April forecast was $42.3 billion) and will enable the NBU to maintain control over the foreign exchange market. The predicted exchange rate of the hryvnia will be UAH 42.6/$ (the previous forecast was UAH 42.3/$).

In July, the National Bank stopped the cycle of lowering the discount rate, leaving it at 13% to curb inflation and maintain the stability of the hryvnia. The pressure on prices is increasing due to the increase in business costs for labor and electricity, as well as due to the devaluation of the hryvnia.

The NBU also updated its forecasts for 2024. The regulator expects inflation at the level of 8.5% (preliminary forecast – 8.2%), reserves in the amount of $41.2 billion (preliminary forecast – $43.4 billion), and the NBU improved the economic growth forecast from 3% to 3.7% .