World Bank confirms forecast for Ukraine's GDP growth by 1% in 2016

Ukraine's economy may rebound starting from 2016 after the contraction in 2014 and 2015, although the restoration will be slow – 1% in 2016 and 2% in 2017 and 2018, according to the World Bank's forecast in its Global Economic Prospects published in January 2016.

World Bank's experts revised downward the assessment of Ukraine's GDP growth in 2018 from 3% to 2% compared to the previous forecast published in September 2015.

"After a 12% contraction in 2015, Ukraine’s economy may rebound modestly in 2016-18, supported by an easing of the conflict in the east and continued progress on its IMF-backed reform program," the World Bank said.

The experts said that fiscal consolidation measures have been introduced aiming to lower the deficit from 4.2% of GDP in 2015 to 3.2% of GDP in 2017. These include cuts in pension benefits, reductions in the government workforce, and an increase in utility tariffs combined with more targeted social assistance. This fiscal tightening may weaken private consumption.

The World Bank said that lower fuel costs are helping narrow the current account deficit, but external financing needs remain substantial. While the bulk of Ukraine’s debt has been restructured, the moratorium on payments to Russia raises uncertainty around the resolution of the debt dispute. The costs of restructuring banks and reforming state-owned enterprises may pose further challenges to fiscal consolidation.

According to the World Bank's forecast, the pace of economic growth in the Europe and Central Asia's economies is projected to accelerate from 2.1% in 2015 to 3%.

"The moderate growth improvement in the forecast period over 2015 depends on the management and mitigation of several key vulnerabilities, including persistent geopolitical tensions, sustained low oil prices, continuing policy uncertainty, and challenging external financing conditions. Prospects vary substantially across the eastern and western parts of the region, and between commodity exporters and importers," the World Bank said.

"Geopolitical tensions associated with Russia-Ukraine relations led to the imposition of international sanctions on Russia, and contributed to a weakening of confidence and investment. The combination of sanctions and lower oil prices have strongly affected Russia, generating adverse spillovers for the region as a whole," the World Bank said.

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