The EBRD says Ukraine’s economy remained resilient to political factors but the pace of growth will stay somewhat modest.

The country’s GDP growth is set to stay at 3.3 per cent in 2019 (a repeat of the 2018 result) and will accelerate slightly to 3.5 per cent in 2020.

The booming construction sector and strong real growth in disposable income were among the factors that helped Ukraine weather the turmoil caused by political developments and ongoing geopolitical instability.

Consumer price inflation slowed to 7.5 per cent in September 2019 but was still above the regulator’s target of 5 per cent.

“Bearing in mind the large public-sector foreign-exchange debt repayments falling due in 2020-21, the new IMF reform-oriented programme is crucially important for anchoring investors’ expectations and supporting macroeconomic stability,” the EBRD Regional Economic Prospects report says.

The pace of growth in the EBRD’s emerging economies is slowing on the back of a weaker global economic outlook, pressure from slower growth in the eurozone and China, US-Chinese trade tensions and a worldwide contraction in automobile production, according to the EBRD report.

A deceleration in economic growth in the EBRD regions this year has also reflected continued economic weakness in Turkey and a slowdown in Russia, it says.

The EBRD’s Regional Economic Prospects report foresees average growth of 2.4 per cent in 2019 across all economies where the EBRD invests, compared with 3.4 per cent in 2018.

The report sees a recovery to 2.9 per cent in 2020, a small downward revision from the forecast of 3.0 per cent in May and still clearly below 2017’s growth rate of 3.8 per cent.

Next year’s upturn will be driven primarily by a stronger performance in Russia and Turkey. The report predicts steady growth in the EBRD’s southern and eastern Mediterranean region.

The outlook sees a strong correlation between growth in emerging Europe and the trends observed at global level and in advanced European economies. It notes that global growth forecasts are currently at their lowest level since the start of the global financial crisis. The eurozone growth outlook is at its lowest since 2013.

“Given its deep integration in ‘factory Europe’ and the importance of the automotive industry for the regions’ economies, emerging Europe is highly vulnerable to weakness in the automotive sector and a further slowdown in Germany,” the report says.

It points out that the Slovak Republic is the world’s largest car producer relative to the size of its population. Other economies in central and south-eastern Europe, such as Hungary, Poland, Romania and Slovenia, are also highly dependent on the automotive industry.

The report says a further escalation of trade tensions and rising global uncertainty about policy, including over the United Kingdom’s plans to leave the European Union, constitute major risks to its latest outlook.

Economies in the EBRD regions are particularly vulnerable to a further slowdown in the eurozone, a deeper-than-anticipated slowdown in China and protracted weakness in the automotive sector globally.

The direct impact of a “soft” Brexit on most of the economies in the EBRD regions is expected to be limited. Indirect effects – through weaker growth in the eurozone – are estimated to be much larger in the event of a “hard” Brexit, particularly in south-eastern Europe.

In this region, the slowing momentum in the approximation with the European Union and the latest controversy regarding the prospects for EU accession in the Western Balkans could have a negative impact on investor sentiment and the growth outlook.

LINK: https://www.ebrd.com/news/2019/ukraines-economic-growth-remains-resilient-but-modest-.html