NBU estimates Ukraine's GDP growth at 4% in Q3, 2024, expects it to slow to 2.4%-2.3% in Q4 2024, Q1 2025

MOSCOW/ Nov 11 (Interfax) - The National Bank of Ukraine (NBU) has raised its real GDP growth forecast to 4% in the third quarter of 2024 year-on-year from its previous forecast of 3.1%.

"The harvesting of late crops began earlier than last year, and is now continuing, buoying the performance of the agricultural sector in the third quarter. The stable functioning of the maritime corridor and a soft fiscal policy supported economic activity as well," Ukrainian media quoted the NBU as saying in its inflation report.

The NBU has improved its estimate of real GDP growth for the third quarter 2024 from 3.1% to 4%, thus leading to a revision of the forecast for economic growth in 2024 from 3.7% to 4%, it said.

The late crops harvesting area increased 81%, the harvest grew 68%, the transshipment of exports at seaports rose 2.1 times, and cargo transportation by rail increased 15% as of the end of the third quarter 2024 year-on-year, NBU said.

"Investment demand positively contributed to GDP growth in the third quarter, same as in the previous quarters. In particular, it was supported by state capital investments in defense and related projects," it said.

In addition, investments in the private sector continued to grow, backed by further improvements of enterprises' financial results due to their extensive needs for energy autonomous equipment, it said.

GDP growth in Ukraine is expected to slow to 2.4% in the fourth quarter of 2024, the NBU said, citing the earlier start of the harvesting campaign for late grain crops and oil seeds, as well as their much lower yield compared to last year, a circumstance behind the agricultural sector's negative contribution to real GDP changes.

Meanwhile, the NBU raised its GDP growth forecast for the first quarter of 2025 from 1.8% to 2.3%, for the second quarter from 2.8% to 3.4%, to 4.6% in the third quarter, and to 6.3% in the fourth quarter of next year versus its earlier GDP growth forecast for the second half of 2025 at 5.1% to 5.9%.

The NBU improved its GDP growth forecast for the whole of 2025 from 4.1% to 4.3%, and by UAH 100 billion to UAH 8.72 trillion in nominal terms, also raising its estimate of GDP growth in nominal terms this year by UAH 40 billion to UAH 7.63 trillion.

"Going forward, Ukraine's real GDP growth will accelerate from 4.3% in 2025 and 4.6% in 2026. It will be driven by the continued loose fiscal policy and a revival in domestic demand supported by rising wages, as well as by increased harvests, strong external demand for Ukrainian products, and investments in recovery, particularly in the energy sector," the NBU said.

However, workforce shortages, security risks, migration processes, and the slow normalization of economic conditions will continue to restrain economic activity, it said.

In its report, the NBU retained its forecast regarding three key risks (with strong influence and a degree of probability of 25%-50%), such as a longer period of the crisis and its intensification, larger budget needs and extensive electricity shortages because of continued damage to the country's energy infrastructure.

The likelihood of an additional hike in taxes or the introduction of new taxes driving up pressure on prices was also added to the list of negative risks with a degree of probability of 25% to 50%, though the NBU estimates this influence as moderate.

The NBU's updated inflation report continues to estimate the influence of the risk of a more intensive and lengthy blocking of freight traffic across the border with individual European Union countries as weak, putting its degree of probability below 15%.

The NBU also added increased migration to the list of geopolitical tension growth risks with moderate influence and a degree of probability of 15%-25%.

At the same time, the probability of a positive risk such as the rapid restoration of damaged energy infrastructure,was reduced from 15%-25% to below 15%. "The balance of risks in the base forecast was shifted toward the intensification of price pressure," the NBU said.

As reported, Ukraine's GDP rose 5.3% in 2023 after falling 28.8% in 2022, according to data from the country's State Statistics Service. GDP grew 4.7% in the fourth quarter of 2023 year-on-year. The State Statistics Service estimated GDP growth at 6.5% in the first quarter and at 3.7% in the second quarter of 2024.