Ukraine economy to shrink by almost 32% in 2022 – central bank

(Reuters) – Ukraine’s economy will shrink by almost 32% this year and annual inflation will accelerate to 30%, largely due to the damage done by Russia’s invasion, the Ukrainian central bank said on Thursday.

Assuming security risks decline and demand picks up, gross domestic product will grow by around 4% to 5% per year in 2023 and 2024, the bank said in a quarterly inflation report.

“This year’s economic downturn has been driven by lower domestic demand, disrupted logistics, and large losses of labor force and production potential caused by the war,” it said, predicting the unemployment rate would hit 30% this year.

“Fiscal policy is unprecedentedly accommodative and will remain so until the end of 2024. This will support the economy during the war and, coupled with the easing of security risks, contribute to economic recovery.”

Inflation – currently at almost 25% – should ease to 21% next year and drop to below 10% in 2024, the bank said.

International financing will remain the primary source of covering the budget deficit, which will narrow gradually to 12% of GDP in 2024, down from 25% of GDP in 2022, it said.

The key risk to the forecast is that the war may last longer than anticipated. Under an alternative scenario, which assumes security risks will last till mid-2024, GDP growth will be just 2% to 3% a year in 2023 and 2024.

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