The National Bank of Ukraine, in its updated Inflation Report, added to the risk map factors that could positively and significantly impact its macroeconomic forecast, including the possibility of a swift end to active hostilities, though it assessed this likelihood as below 15%.
"Military risks for Ukraine persist amid global geopolitical tensions. At the same time, there is a chance that the efforts of the international community aimed at achieving agreements for a fair and lasting peace for Ukraine will be realized in the near future," - stated the document published on the NBU's website.
According to the report, the map was enhanced with two additional positive risks: increased financial support from partners (the text mentions the potential use of the principal amount of immobilized Russian assets) and the acceleration of Euro-integration processes.
The National Bank clarified that this enhanced external support would have a strong influence, with a probability ranging from 15% to 25%, while the acceleration of Euro-integration has a probability of up to 15% and will moderately affect the macroeconomic forecast.
As for two other low-probability positive risks - the rapid restoration of damaged energy infrastructure and the swift execution of a large-scale recovery plan for Ukraine - they remained unchanged in the updated review.
The National Bank also retained three key negative risks in the forecast (with strong influence and high probability of 25-50%): escalation of hostilities, further destruction of production capacities; significant budgetary needs and a larger energy deficit due to ongoing damage to energy infrastructure.
The NBU also increased its assessment of the probability of heightened geopolitical polarization among countries and, consequently, fragmentation of global trade from medium to high, but reduced the likelihood of tax increases to medium.
"The balance of risks in the baseline forecast has shifted towards increased price pressure in the short term," - the central bank also noted.
In the updated report, the NBU projected real GDP growth for Ukraine in the fourth quarter of 2024 compared to the same period last year at 2.1%, while it previously forecasted it at 2.4%.
"A significant factor in weak economic activity in the second half of 2024 was the energy deficit caused by the destruction of energy infrastructure, particularly maneuvering generation due to new shelling by the Russian Federation. A notable energy deficit was observed in July, November, and December. The security situation also significantly worsened, especially towards the end of the year," - the National Bank noted in the Inflation Report published on its website.
It specified that the number of air raid alerts and shelling increased significantly, primarily in several frontline regions, and some production capacities were lost.
"As a result, business expectations and production activity weakened in several sectors, particularly in energy, mining, and metallurgy," - summarized the National Bank, which in November estimated GDP growth in the third quarter of 2024 at 4%, while it actually turned out to be half that amount.
The NBU noted that this revision of the economic dynamics assessment in the second half of the year led to a reduction in the GDP growth estimate for 2024 from 4% to 3.4%, although just in November it had been improved from 3.7% to 4%.
Regarding 2025, the National Bank downgraded its growth forecast for the first quarter from 2.3% to 2.0%, for the second quarter from 3.4% to 3.0%, for the third from 4.6% to 4.2%, and for the fourth from 6.3% to 4.7%.
As a result, the overall GDP growth forecast for this year has been reduced from 4.3% to 3.6%, although due to significantly higher inflation in nominal terms, it has been increased by 120 billion UAH - to 8.84 trillion UAH, while for 2024, the nominal GDP forecast was raised by 90 billion UAH - to 7.72 trillion UAH.
"GDP growth will be supported by investments in restoring energy capacities, a soft fiscal policy, a revival of domestic demand amid rising wages, as well as an increase in food production due to higher yields," - explained the NBU.
At the same time, it pointed to the limitations of production capacities, weak business expectations, ongoing migration processes, and slow normalization of economic conditions, which will hinder recovery over the forecast horizon.
"The expected GDP growth rates have been lowered compared to the NBU's October forecast due to the loss or shutdown of production capacities at the end of 2024, including in Pokrovsk (for coking coal production - IF-U), slow growth in external demand, and a strong exchange rate of the hryvnia," - added the National Bank.
"The balance of risks in the baseline forecast has shifted towards increased price pressure," - noted the NBU.
As reported, Ukraine's GDP, according to the State Statistics Service, grew by 5.5% in 2023 after a decline of 28.8% in 2022, with growth in the fourth quarter of 2023 amounting to 4.7%. In the first quarter of 2024, the State Statistics Service estimated GDP growth at 6.5%, in the second - at 3.7%, and in the third - at 2%.