Growth robust for now, but tapering may hurt
H1 2021 was marked by poor economic performance, as industrial output stagnated along with contracting agro-production following poor harvests in 2020. GDP recovered in Q2 by a modest 5.4% y/y, after plunging 11.2% y/y a year ago. Yet there was a strong revival in private consumption, as retail trade grew 13.4% y/y by June. Global inflation on commodities also improved prospects for the balance of trade in 2021.
In H2, economic activity is expected to strengthen on the back of a robust 2021 grain harvest. Thus, despite a sluggish start to the year, we still expect GDP to grow by 4% y/y in 2021. For 2022, we maintain our view that GDP growth will ease to +3.8% y/y, with the lack of fundamentals for sustainable economic expansion, and the looming prospect of a Fed tapering.
Ukraine is enjoying strong export proceeds, and benefits from high prices, although real exports are down.
Against this backdrop, we have upgraded our current account forecast to a $0.9 billion surplus, or 0.5% of GDP, for 2021. Due to impressive export proceeds, the trade balance promises to be even better than a year ago. The only reason the current account surplus has narrowed from 2020, from a $5.2 billion surplus or 3.4% of GDP, is a surge in interest income withdrawals abroad. For 2022, we see a sharp CAD expansion, up to $8.1 billion, or 3.8% of GDP, on the back of an expected easing of export prices.
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