Myroslav Prodan on the consequences of the economic crisis for Ukraine: “The hryvnia exchange rate may fall to 30”
Myroslav Prodan, an expert on tax and customs policy, assessed the impact of quarantine on the Ukrainian economy. According to the results of 2020, the state’s economy may fall by 3.5%, and inflation in 2020 may rise to 8.9%, according to the World Bank forecast published in late March.
“According to the updated macro-forecast of the government of Ukraine, the inflation rate may rise to 11.6% and GDP may fall by 4.8%. The first version of the “crisis” forecast was about inflation at 8.7%, and a fall in GDP was expected at 3.9%. In such circumstances, the average annual exchange rate of the hryvnia should decrease from UAH 27 per dollar to UAH 29.5 per dollar, ”says Myroslav Prodan.
The expert cites the baseline scenario of the investment company Dragon Capital, which provides for a reduction in GDP in 2020 by 4% and the devaluation of the national currency to UAH 30 per dollar. According to the macro forecast of the Institute for Economic Research and Policy Consulting, Ukraine’s GDP may shrink by 5.9%, the current account deficit will reach 4% of GDP or $ 5.6 billion, and the national currency will be UAH 29.7 per dollar.
“The least encouraging forecast is the IMF, which expects a serious drop in economic growth in Ukraine due to the coronavirus – to” minus “7.7% in 2020,” – said Prodan. According to other data of the IMF forecast for Ukraine, the consumer price index will fall from 7.9 last year to 4.5 – this year. The current account balance will remain negative, at minus 2.0 in 2020 and minus 2.4 in 2021. The unemployment rate in Ukraine, according to the IMF, will increase to 10.1% in 2020.
“The sharp decline in economic indicators for Ukraine is in line with global trends related to the economic and financial crisis predicted by the IMF in connection with the consequences of the coronavirus pandemic. Thus, according to the Fund, the growth rate of the global economy as a whole will fall sharply from 2.9% last year to minus 3.0% at the end of this year. It is expected that the economic downturn will not be missed by the most developed economies, including the United States, China, the European Union and other economies around the world, “said the expert.
At the same time, according to international experts, the coronavirus pandemic will hit Ukraine’s economy in three directions this year. First, cash incomes and consumption will fall due to sudden restrictive measures under quarantine, including in connection with the closure of services and transport, as well as unemployment. Secondly, there will be a decline in income from workers due to declining economic activity in Poland and other EU countries. According to experts, such a reduction could exceed 20%. Third, the fall in world prices for raw materials, which will affect Ukraine’s exports.
“In 2019, Ukraine exported the most grain and oilseeds, ferrous metals, vegetable and animal fats, as well as iron manganese ore,” says Myroslav Prodan.
According to him, the fall in oil prices is likely to lead to a fall in prices for all commodities, as well as the outflow of investment from risky markets, which are Ukrainian markets.