The hryvnia forex rate and inflation will improve in Ukraine in 2023, with the economy growing by 3%, analysts from the Dragon Capital investment company said in their updated economy forecast for June.
The favorable macroeconomic background and the improvement of the situation on the foreign exchange market create opportunities to return to limited exchange rate flexibility already this year and set the hryvnia forex rate at UAH 39 per dollar in late 2023, against the previous forecast of UAH 43 per dollar, Dragon’s analysts said.
The updated forecast says the reserves of the National Bank of Ukraine or NBU will remain at the level of $37 billion at the end of 2023, as increased volumes of currency sales by the NBU due to the easing of currency restrictions, as well as increased demand for currency in the first months of the transition to a more flexible exchange rate, will be compensated for by inflows of international aid.
Given the improvement in the exchange rate forecast and the sharper-than-expected slowdown in consumer inflation in recent months, the company’s analysts lowered the inflation forecast by 3.5 percentage points by late 2023, to 12.5% year over year (y/y).
“We expect that the favorable inflation dynamics will allow the NBU to lower the discount rate to 20% by the end of the year,” the report says.
The GDP growth forecast is +3.0% in 2023 (the forecast was improved in April 2023 from -0.5% y/y).
“We estimate that the pace of GDP decline in Q1 2023 has slowed to -13% y/y, from -31.4% in Q4 2022, primarily due to the low comparison base last March, but also due to the gradual recovery of economic activity since the beginning of the year amid no electricity shortages, favorable external conditions on the steel and ore markets, improvement in consumer sentiment, as well as inflation and exchange rate expectations,” the analysts added.
Dragon Capital’s forecast is based on the assumption that the grain deal that allows Ukraine to export grain from its Black Sea ports will be extended beyond July 18, although grain shipments will be delayed due to obstacles created by Russia.
“Expecting this year’s grain harvest at the level of 55 million tons, we estimate the average monthly grain export potential of about 3.5 million tons, compared to 4.4 million tons per month of actual exports since the grain deal was launched,” reads the report.
“At the same time, the throughput capacity of alternative export routes has significantly expanded, up to an estimated 3.2 million tons of grain per month, compared to 1-1.5 million tons in the first months of the war. Thus, even without access to sea ports, the lion’s share of the export potential can be taken out by alternative routes, provided that EU countries do not impose new restrictions on the import or transit of Ukrainian grain.”