Ukraine’s central bank lays out two scenarios for economy depending on war
Photo via National Bank of Ukraine press service

The National Bank of Ukraine, Ukraine’s central bank, published a revised inflation report late on Thursday laying out two economic scenarios depending on how soon the full-scale war might end.

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The outlook is "based on the assumption that security risks will decline in intensity with the arrival of 2024, and takes into account the continued recovery of logistics chains and production capacities, and the conduct of consistent monetary policy by the NBU," it reads.

It forecasts a two-percent growth for the economy considering the energy system’s rapid revival and growing amounts of anticipated international aid.

In the years that follow, economic growth rates are expected to accelerate to 4.3 percent and 6.4 percent, respectively.

The NBU forecasts that inflation will slow down to 14.8 percent by the end of 2023, and fall to 9.6 percent next year, and to the target corridor of 6 percent in 2025.

The outlook is also positive for the labour market, which, assuming no new significant shocks occur, will continue to recover in 2023–2025, and the unemployment rate will gradually decline: to 18.3 percent in 2023, to 16.5 percent in 2024, and to 14.7 percent in 2025.

"Real wages will return to growth, although it will be moderate this year (3.7 percent) due to still-high inflation," the NBU noted in the outlook.

"Conversely, nominal wages will grow at double digits over the entire forecast horizon [2023-2025]."

A higher intensity and a longer duration of the full-scale war in Ukraine is the most serious risk to the current forecast, the central bank said.

Under such a scenario, although businesses are expected to adjust to operating amid high security risks, economic growth in 2024 will be limited to 2 percent, decelerating the labour market’s recovery.

"Inflation will be restrained by the extension of the moratorium on tariff increases for certain utilities, but will significantly accelerate after tariffs are allowed to rise," the outlook reads.

"Should the scenario of a protracted war materialise, monetary conditions will remain tight longer."

On the upside, a positive risk to the forecast is a rapid implementation of Ukraine's reconstruction, which, accompanied by reforms needed for EU accession, "will considerably speed up economic growth, reducing unemployment and raising incomes," the NBU believes.