Dragon Capital halved Ukraine’s GDP growth forecast to 4.0% amid expectations of another year of war

Dragon Capital
Dragon Capital

Investment company Dragon Capital* has halved its GDP growth forecast for 2024 to 4.0% year-over-year, and expects the hryvnia exchange rate to reach 39 UAH/USD by the end of next year, firm said in an updated forecast economic forecast for Ukraine.

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"Given the dynamics of events on the front, we revise our key assumption for 2024, expecting that the war is likely to continue throughout next year," Dragon Capital said.

The continuation of the war means that Ukraine's economy will not receive a boost from the partial return of refugees and improved economic sentiment, but the recent resumption of exports of goods through Ukraine's Black Sea ports could be an important driver of economic growth.

Dragon Capital estimates that at least 46 ships with a total cargo capacity of 1.85 million tons have entered Ukrainian Black Sea ports since a temporary shipping was opened by the Ukrainian authorities. The majority of these vessels – 41 ships with a cargo capacity of 1.7 million tons – arrived at the ports of Odesa in October. The ships arrived loaded with goods that are traditionally shipped by sea – agricultural and industrial (mainly iron ore and to a lesser extent metals and coal).

Analysts believe that a full resumption of transportation through the Black Sea ports could increase export revenues by $9-10 billion in 2024, a third more than in the "no Black Sea ports" scenario, and have a positive impact on real GDP growth of up to 5.0 percentage points. At the same time, inflation could rise by an additional 2.5 percentage points due to the secondary effects of rising domestic grain prices.

However, as long as the hostilities continue, the risk of damage to ships sailing to Ukrainian ports in the Black Sea will remain relevant, so Dragon Capital does not expect a full recovery of shipping through these ports. Assuming that export volumes through the Black Sea ports will fluctuate between 1.5 and 3.5 million tons per month, and expecting that the economy will be supported by the further development of the domestic military sector, analysts forecast that Ukraine's real GDP will grow by 4.0% y-o-y in 2024, compared to 8% previously expected in the scenario of reduced security risks in early 2024.

At the same time, the growth forecast for 2023 remains unchanged at 4.5% y-o-y, "as the latest available data confirm our expectations that economic activity stabilized in the third quarter of 2023 after gradual growth in the first half of the year."

Dragon Capital also expects that Ukraine's foreign partners will continue to support the country financially, consolidating $40 billion in direct budget support under the auspices of the IMF next year. This should be sufficient to finance the budget deficit, provided the government increases domestic borrowing, and will contribute to further growth of NBU reserves to $45 billion in 2024. This will allow the NBU to continue gradually easing currency restrictions.

The analysts decided to improve the forecast for the hryvnia exchange rate against the US dollar, expecting it to reach UAH 37 per dollar by the end of this year (compared with the previous forecast of UAH 37.5 per dollar) and UAH 39 per dollar by the end of 2024 (compared with UAH 41 per dollar), as exchange rate stability will remain a key goal for the National Bank in the context of the ongoing war, despite the recent transition to a managed flexible exchange rate.

They also lowered their inflation forecast for the end of 2023 by 3.0 percentage points to 6.0%

y-o-y, taking into account a stronger than expected decline in fundamental pressures in recent months and an increase in the forecast harvest for certain crops (e.g. vegetables, buckwheat). Dragon Capital expects inflation to accelerate to 8.0% in 2024, mainly due to higher domestic agricultural prices as a result of the partial recovery of the Black Sea ports.

"The main risks to our forecast remain related to the course of the war, including the situation on the front and damage to critical infrastructure (electricity, gas, ports),” the firm concluded.

"The volume and pace of foreign financing also remain key risk factors for Ukraine's economy. A significant decrease in financial assistance in 2024 or a long delay in the receipt of funds could undermine macroeconomic stability, although the accumulated safety margin, in particular in the form of record high NBU reserves, will allow to keep the situation under control for some time.”

The Economy Ministry forecasts that Ukraine's GDP will grow by 4% in 2024, and this forecast is included in the draft state budget for 2024.

The World Bank forecasts that Ukraine's GDP will grow by 3.5% in 2023 and 4.0% in 2024.

*Dragon Capital is the owner of NV magazine,, The New Voice of Ukraine, and Radio NV.

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