Week's balance: Cabinet approves updated macro forecast, hryvnia stabilizes, while electricity tariffs rise

In the last week of July, the government approved the revised forecast of economic and social development for the next three years. Prime Minister Denys Shmyhal says the updated macro forecast envisages the return to the trajectory of economic growth as early as next year, with a tentative increase in GDP by 4.6%. Minimum wage in 2021 will grow first to UAH 6,250 and by the end of the year – to UAH 6,500. In 2022, minimum wage will stand at UAH 6,700, and in 2023 – at UAH 7,200. The updated macroeconomic forecast confirmed the estimate of the GDP fall in 2020 at 4.8%.

"Our baseline forecast remains unchanged for Ukraine. This is a 4.8% decrease in GDP in 2020. We see that Ukraine is moving by the scenario developed by the Ministry of Economy. The Ministry of Economy and the Ministry of Finance so far confirm movement in line with this scenario," PM said. Also, the prime minister noted that in order to achieve economic growth, it is necessary to focus on supporting small and medium-sized businesses, developing industry, supporting national producers, ensuring domestic investment, and improving the business climate. Finance Minister Serhiy Marchenko predicted that the Ukrainian economy would start to recover by the end of this year, with the dynamics reviving next year. "Already in Q4 2020, we expect a gradual economic recovery. Economic dynamics are expected to revive in 2021. This will be the budget of growth for citizens' wellbeing and the country's economy," the minister emphasized. As for the hryvnia, the updated macro forecast revised the national currency rate for 2021 to UAH 29.1 hryvnia to the U.S. dollar. Economic crisis Meanwhile, the economic crisis in Ukraine is ongoing. In the outgoing week, the National Bank estimated the country's GDP decline in the second quarter of 2020 at 11% in annual terms. The main factors for the deterioration were severe quarantine restrictions on certain types of activities, as well as a decline in agricultural output due to the late start of early grain crops harvesting. According to the National Bank, Ukraine's GDP forecast for 2020 has been revised downward to 6% due to the continued low demand within the country amid quarantine.

In the outgoing week, the hryvnia pleased Ukrainians with its relative stability. The national currency, at the official rate, fluctuated around UAH 27.69 per dollar. As a result, the National Bank on Monday, August 3, set the hryvnia to the dollar at the level of UAH 27.68, that is, the national currency has strengthened by 1 kopiyka against the previous indicator. The head of the Ukrainian government in the outgoing week once again assured that he does not intend to interfere with the work of the National Bank and push it toward weakening the hryvnia exchange rate and heating up inflation. The government does not plan to stimulate industrial development in this way. More financial news came from the Ministry of Finance where settlements were completed on the last week's issue of Eurobonds worth $2 billion at 7.253% maturing in 2033. The transaction allowed Ukraine to optimize its external debt servicing and reduce financing risks for the coming years. Also, the State Statistics Service announced an increase in the average nominal wage of a full-time employee in June on year by 7.4% - up to UAH 11,579. At the same time, real wages in June increased by almost 10% against the previous month, and by almost 5% on year. In the last week of July, news came from S&P Global Ratings, which raised the long-term credit rating of Ukrzaliznytsia from CCC to B-, which means that the company is fulfilling its obligations under the securities issued. This is a good signal for the stable functioning of the Ukrainian railway operator, which provides more than 80 percent of freight and about half of passenger traffic across country.