Sunday03 November 2024
podrobnosti.org.ua

The IMF has updated its baseline forecast for the conclusion of the war in Ukraine.

Experts from the International Monetary Fund have updated their forecast regarding the duration of the war between Russia and Ukraine. The timeline for the conclusion of intense combat operations has been pushed back by a year.
МВФ обновил основной прогноз окончания войны в Украине.
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This was reported by Kontrakty referencing the Memorandum with the IMF.

"In the updated baseline scenario, the war will come to an end in the last quarter of 2025, which will exert a strong dampening effect, but Ukraine will be able to maintain moderate (economic) growth," the document states.

In June, the IMF projected the war would end in late 2024 in the baseline scenario, while the conclusion of the war by the end of 2025 was included in the fund's negative forecast.

Overall, the baseline scenario suggests that the impact of the war will be concentrated in areas that already have reduced economic activity due to security concerns.

Although growth will remain positive, driven by recovery, a prolonged war is expected to have a negative impact on economic indicators due to more persistent uncertainty, labor shortages, import pressures related to defense and repair, and demographic dynamics, according to the memorandum.

Real GDP growth in 2024 is projected to be 3%. Growth is likely to moderately slow in the third quarter, with early harvest and export resilience offsetting the negative impact of energy shortages. The economy is expected to slow further in the fourth quarter due to increasing energy deficits driven by higher demand during the heating season, the IMF predicts.

The IMF estimates the winter energy deficit at 3-4 GW, which "aligns with estimates from other stakeholders," with negative risks predominating due to missile attacks and seasonal factors, the memorandum states.

Inflation will continue to rise to 9% (year-on-year) by December, reflecting a sharp increase in producer prices (primarily driven by energy) and labor costs.

In the external sector, higher demands for energy and defense imports and a weaker harvest will largely offset the easing situation from the restructuring of Eurobonds and push the current account deficit to $14.9 billion (8.1%). However, significant external financing will increase gross international reserves to $42.6 billion, according to the forecast.

Real GDP recovery will occur more slowly (2.5-3.5% year-on-year, 2-3 percentage points lower than the previous forecast) due to the prolonged war. Inflation is expected to decrease to 7.5% by year-end due to easing cost pressures. The current account deficit is projected to increase to $27.1 billion (14.3% of GDP) due to persistent import needs, the impact of labor shortages on export production, and a reduction in grants, which will outweigh the favorable effects of stable shipping, private remittances, and debt restructuring.

Despite the deterioration of the current account, some contraction in net foreign direct investment and an increase in cash currency holdings outside banks amid uncertainties related to the war, gross reserves are projected to rise to $44.9 billion with the support of external financing, the IMF forecasts.

According to the IMF, post-war recovery will be slowed by the scars of a more prolonged war, but the medium-term outlook relies on a strong reform program and paths toward EU accession, as well as partial reconstruction.

A more moderated recovery of post-war production in the updated baseline forecast reflects a slower return of migrants, leading to a greater long-term population loss.

Overall, the updated baseline forecast anticipates a cumulative loss of real GDP of 2% by 2027 (and 2.7% by 2033) compared to the June forecast.

"However, potential growth will remain largely unchanged as investment flows and overall factor productivity (driven by decisive reforms, reconstruction efforts, and confidence) will outweigh the adverse impact of a prolonged war on physical capital and labor," the forecast states.