Recovering Economy: Ukraine's International Reserves Surge, Limited Devaluation Risks, and Positive Growth Outlook
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Country strategy: Limited short-term risks to the hryvnia
Ukraine’s international reserves exceeded nearly US$36bn in May, for the first time since 2011. This reflected continued foreign aid and lower monthly costs of FX interventions (c.US$2bn in May, down from the monthly peak of US$4bn in June 2022). This significantly deceases near-term odds of another devaluation of the hryvnia, as the central bank may prefer a stable currency to combat inflation. The fundamental factors behind the hryvnia remain unsupportive though. Ukraine is running a significant trade deficit, as exports collapsed in 2022, while imports remained quite stable. With the central bank aiming to re-liberalise the FX market at some point this signals risk of further devaluation in the future.
Forecast summary
Positive growth in 2023 to follow 30% GDP wartime losses
The Russian invasion in 2022 has brought huge human, social and economic losses to Ukraine.
The country’s GDP shrank by nearly 30% in 2022. According to the World Bank estimates, sectoral output declined by about 60% in industry, 25% in agriculture and 20% in services.
In the second half of 2022, severe disruptions to businesses were caused by damage to energy infrastructure, which impacted around 40% of Ukraine’s power grids. Out of about 20 million refugees, 8 million are yet to return home.
The country’s economy seems to have passed the greatest shock and, on our estimates, real GDP is set to recover gradually and reach 2% positive growth in 2023, and accelerate in subsequent years, driven mainly by consumption.
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