The National Bank released the Monthly Macroeconomic and Monetary Review for December 2022.
The main conclusions identified by the NBU relate to the dynamics of inflation, the problems of economic development during the war, and new energy threats that affect economic agents:
1. Global economic growth slowed down and led to the weakening of price pressure, primarily on oil and other goods significant for Ukrainian exports.
2. As a result, the leading central banks are slowing down the pace of rate increases, while the EM countries are inclined to a gradual end of the cycle.
3. Consumer inflation in Ukraine demonstrates signs of stabilization (26.5% y/y in November compared to 26.6% in October).
4. It was restrained by the growth of the food products supply, weak consumer demand, including as a result of power outages, the approximation of the hryvnia cash rate to the official one, the stabilization of inflationary expectations, and unchanged tariffs for housing.
5. At the same time, inflationary pressure upheld due to the consequences of hostilities and terrorist attacks inflicted by the Russian Federation, including the shortage of electricity.
6. Energy deficit due to large-scale shelling of energy facilities leads to the weakening of economic activity, reduced production, and increased business costs.
7. At the same time, businesses are trying to adapt to the situation. They buy generators and shift production to night hours.
8. The grain corridor, the completion of the harvest, and the liberation of Kherson have supported economic activity.
9. Power outages also worsen the state of the labor market: the demand for labor and the growth of the number of job seekers have lowered.
10. Nominal wages have approached last year's level, but real wages have significantly decreased, especially in the private sector.
11. The risks of higher migration rates have increased.
12. The state budget deficit continues to widen due to significant expenditures and weak revenues.
13. As before, the primary sources of financing the deficit are international aid and the purchase of government bonds by the NBU.
14. In October, the current account returned to the deficit due to the negative balance of trade in goods and the lack of grants.
15. But thanks to the receipt of substantial loans from foreign partners, there was an inflow of capital and reserves increased to 25.2 billion dollars as of October.
16. In November, reserves continued to grow thanks to international aid. At the end of the month, they amounted to 28 billion dollars.
17. The cost of hryvnia resources is gradually increasing, responding to the maintenance of the discount rate at a high level since June.
18. Seasonal factors and the continuation of foreign currency inflows from the grain corridor and international aid, including in support of energy enterprises, contributed to a greater balance of the foreign exchange market and, accordingly, to a decrease in NBU interventions.
Summary:
In the near future, one should not expect an increase in the NBU discount rate. At the same time, a decrease in the prime rate is also unlikely.
Most likely, the NBU discount rate will remain at 25% in the first quarter of 2023.
The real inflationary trend will currently remain in the range of 25-30%.
The approach of the world economic recession and the US policy in the form of an "expensive dollar" will affect the downward correction of world oil prices.
Low consumer demand and population migration abroad are key anti-inflationary factors in Ukraine, which hold back more dynamic price growth due to suppressed consumer demand and a simultaneous decrease in its solvency.
The shortage of electricity is a primary factor that may prevent the planned GDP growth in Ukraine by 1% in 2023 (IMF growth forecast).
In the first quarter of 2023, the fall in GDP will continue (high comparative base of January - February 2022).
According to the NBU estimates, Ukraine experiences supply/production cost inflation rather than demand inflation, which is related to the growth of the population's demand for goods and services.
Demand inflation is currently observed only in a narrow segment of energy supply equipment (accumulators, generators, converters, etc.).
The foreign exchange reserves of the NBU exceeded the pre-war level due to Western financial aid, although in recent months, there has been an increase in loans compared to grants in the summer.
An increase in the trade deficit in the balance of payments (exceeding imports over exports) indicates a gradual decrease in the supply of goods by national producers in the domestic market.
The labor market crisis, unemployment, and low labor income are fundamental challenges in the first half of 2023 for the population.
For enterprises, the primary shock is the increase in prices for energy resources (mainly electricity and natural gas) and the insufficient volume of certain types of energy resources (electricity deficit).
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