Ukraine’s economy is performing below expectations, with a disappointing 2.4% of GDP y/y growth in Q3 despite a historically bumper grain crop. To large extent, this is due to postponed harvesting, and there should be a proper upsurge in agroproduction—and GDP growth—in Q4. Still, good harvests aside, Q3 results are a perfect illustration of just how sluggish Ukraine’s economic recovery is.
The United States has already embarked upon monetary tightening, adding more risks to Ukraine’s already tense recovery. Against this backdrop, the record-high 2021 harvest, as well as elevated food prices thanks to poor harvests in other regions, should serve as a life raft, as commodity prices begin to slide globally. Given the strong farm sector performance, we have somewhat revised upward our outlook for external accounts, but still see a trade deficit expansion looming in 2022.
Western media are abuzz over the risks of a potential new Russian offensive against Ukraine. In our view, Moscow is playing a probing and bargaining game, to see how the European Union and the United States react. No doubt Moscow is also trying to stir up domestic politics in Ukraine, as public irritation with the Zelenskiy administration grows. But unless Russian President Vladimir Putin picks on some obvious weaknesses in his Western neighbors, the saber-rattling will calm down once again — until the next opportunity to overrun Ukraine arises.
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