Inflation to reach 31% in 2022, GDP to drop by third - National Bank

Inflation to reach 31% in 2022, GDP to drop by third - National Bank

In 2022, inflation will reach 31%, and GDP will decrease by a third. In the coming year, the economy is expected to return to growth, while inflationary dynamics will decline.

That’s according to the press service of the National Bank, Ukrinform reports.

"By the end of 2022, inflation will accelerate and reach 31% given the persistence of the impact of most supply shocks. This is, in particular, about the consequences of hostilities and the high cost of energy. In the next year, inflation is expected to slow down thanks to better inflationary expectations, the improvement of logistics, and the gradual growth of crops," the report says.

It is noted that an additional disinflationary effect will be a decrease in global inflation and the NBU’s tight monetary policy. Instead, the high cost of energy and the need to gradually increase household tariffs to market levels will restrain inflation slowdown. As a result, consumer inflation will decline to around 20% in 2023 and slow to single-digit levels only late 2024.

Read also: NBU sets official hryvnia exchange rate at 36.56 per U.S. dollar

At the same time, the Russian invasion of Ukraine led to a sharp decrease in economic activity and losses of the economy's potential. Economic activity has picked up since April, primarily due to the liberation of the northern regions and the shrinking of hostility zones, but the economy is operating at a much lower capacity than it was before the war. As a result, according to the NBU outlook, in 2022, real GDP will decrease by a third.

In the next year, provided security risks are reduced, the economy is expected to return to growth due to revival of consumer demand, adjustment of technological and logistics processes, restoration of investment activity, including thanks to the European integration prospects. Significant losses of production and human potential will hold back the recovery. In 2023-2024, GDP will grow at an annual rate of about 5-6%.

As reported, on July 21, 2022, the National Bank adjusted the hryvnia’s official exchange rate to the dollar by 25%, to UAH 36.5686, given the change in the fundamental features of Ukraine's economy during the war and the strengthening of the U.S. dollar against other currencies.

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