Ukraine's central bank more than halved its 2016 growth forecast Thursday as the cash-strapped country battles crises ranging from falling commodity prices to a new trade embargo by Russia. The National Bank of Ukraine (NBU) also left its main borrowing rate unchanged at 22 percent in order to keep persistent inflation expectations in check.
The announcements came with Kiev eagerly expecting a new foreign cash injection that could shore up investor confidence and reverse a currency slide that saw the hryvnia lose more than 60 percent of its value against the dollar last year. The NBU said a number of unfavourable factors outside the war-scarred country's control had forced it to revise down the growth forecast to 1.1 percent from the 2.4 percent it had predicted only two months earlier.
It added that initial readings showed the economy shrinking by 10.6 percent in 2015 - largely in line with government projections and slightly above those from the International Monetary Fund (IMF). "A weaker-than-previously expected economic recovery can be attributed to lower-than-expected global commodity prices, deteriorating global economic growth prospects, and fresh trade restrictions imposed by the Russian Federation," the NBU said in a statement.
Russia this month expanded its embargo on Ukrainian products and restricted their movement across its territory to other markets in response to its westward-leaning neighbour's decision to join an EU free-trade and political association pact. Ukraine's economy relies heavily on grain and various metals exports that have been falling in price in line with that of oil over much of the past year.
The bank said it may resume interest rate cuts to spur growth "provided that inflationary risks subside primarily due to the stabilisation of the global commodity markets and the disbursement of the next tranches of official financing." Ukrainian Finance Minister Natalie Jaresko said this week she expected the former Soviet republic to receive about $10 billion (9.2 billion euros) in assistance from the IMF and other sovereign lenders this year.
President Petro Poroshenko added shortly after meeting IMF chief Christine Lagarde in Davos last week that a delayed $1.7-billion tranche of a $17.5-billion rescue deal struck with the Fund a year ago should be released next month. Ukraine's currency was one of the world's worst performers in 2015 due in part to a strict IMF condition that the central bank limit its interventions and eventually let the hryvnia float. But that policy produced an instant jump in prices and dented public support for Prime Minister Arseniy Yatsenyuk - one of the leaders of the former Soviet country's 2014 pro-EU revolution.
The NBU said that year-on-year headline inflation had "moderated" to 43.3 percent by the end of 2015.
Core inflation - a measures that excludes the price of volatile products such as energy and food - declined to 34.7 percent. "Every currency is losing value against the dollar at the moment," Ukrainian news agencies quoted NBU chief Valeria Gontareva as saying. The NBU said it expected headline inflation to slow to 12 percent this year and eight percent in 2017. Economists at Austria's Raiffeisen bank agreed that "monthly statistical indicators show that Ukraine's economy has clearly bottomed out."