Expectations have deteriorated: experts tell us how long the war and economic downturn will last.

New forecasts from non-governmental experts on economic development and the duration of the war in Ukraine have been published. How do they differ from the scenarios of the Ukrainian authorities, and what should citizens prepare for?

The consensus forecast of Ukrainian experts and companies, published by the Centre for Economic Strategy (CES), estimates Ukraine’s GDP dynamics in 2023 at -0.1%. The consensus forecast was based on a survey of seven leading analytical teams – Dragon Capital, Concorde Capital, Morgan Stanley, ICU, Oxford Economics, Sense Bank, and the Institute for Economic Research and Policy Consulting in cooperation with the German Economic Team.

The disparity between the forecasts of individual analysts was quite significant, reaching about ten percentage points. The worst forecast was for a 4.6% decline in GDP, while the best was for a 5.5% increase.

During the online discussion of the consensus forecast, the author of the most optimistic forecast, Oleksiy Blinov, Head of the Analytical Department at Sense Bank, noted that the effect of the blackout on the economy was very moderate and would remain in 2022. The expert recalled that the end of November 2022 was the most difficult, followed by the first half of December, after which the situation began to improve, which most Ukrainian citizens felt in February.

“Our forecast didn’t have time to get scared,” Blinov joked.

The panellists pointed out that economic forecasting in wartime is difficult due to the need for more data for analysis. In particular, Oleksandra Betliy, a leading expert at the Institute for Economic Research and Policy Consulting, stressed that in January-February 2023, the last year’s corn harvest would continue to be collected, and it is unclear in which year the State Statistics Service will record it, which will significantly affect the agricultural indicators.

Betliy also stressed the critical importance of logistics for the development of Ukraine’s economy. According to the expert, the performance of metallurgical enterprises shows that they can increase production if they can export their goods. Accordingly, even expanding the maritime corridor for grain will reduce the volume of grain transported by rail and free up capacity for the steel industry. The forecast of the Institute for Economic Research and Policy Consulting for GDP dynamics is 1.7%.

In turn, Evghenia Sleptsova, Senior Economist at Oxford Economics, justified her most pessimistic forecast among the survey participants by saying that the war will, unfortunately, continue throughout the year, and the steel industry, which has lost about 80% of its production, is unlikely to be able to use the Black Sea export corridor.

“We expect a fairly dynamic recovery from quarter to quarter – 7-9%, but the base of January-February 2022 does not allow us to cover this big minus we have for the year,” the expert said.

According to Maria Repko, Deputy Director of the CES, the analysts surveyed made their forecasts based on the assumption that a grain corridor will be available for the exports of crops in 2023. However, opinions differed on the further duration of the war.

Four teams of analysts surveyed predict that the war will continue in 2023 and may end only in 2024. Two consensus forecast participants expect the war’s hot phase to finish in the middle or third quarter of 2023.

During the discussion of the consensus forecast, Sergiy Nikolaychuk, deputy governor of the National Bank of Ukraine, noted that the NBU had to downgrade its forecast in January from 4% to 0.3% due to attacks on Ukraine’s energy infrastructure in the fourth quarter of 2022.

At the same time, Nikolaychuk noted that the situation in the first quarter would be much better thanks to the fact that our energy sector has demonstrated extraordinary resilience, the work of air defence forces has been successful, power engineers who repaired the damage have shown extraordinary heroism, and we were lucky to have mild weather, which made the need for energy resources much lower than expected before the start of winter. As a result of these factors, the NBU will likely revise its forecast upwards.

In turn, Oleksii Sobolev, Deputy Minister of Economy of Ukraine, reminded that the GDP growth forecast used to prepare the budget was +3%.

“To calculate this figure, we relied on the assumption that the hostilities would end in mid-2023, and now we assume that the hostilities will continue for another year, which affects the GDP forecast, which instead of 3% growth, assumes 1% growth,” Sobolev said.

Sobolev also stressed that every 100,000 Ukrainians returning from abroad add 0.5% to the GDP. That is why it is crucial for economic growth to create conditions for those fleeing war in other countries to come to Ukraine.

Source: Focus.