NBU notes slight increase in Ukraine`s GDP in 1Q

Ukraine`s economic activity kept growing in 1Q 2016 with real GDP reporting slight increase in annual terms, as expected in the previous forecast, according to the April Inflation Report of the National Bank of Ukraine (NBU), published on its website.
The forecast for annual real GDP growth remained unchanged – 1.1% in 2016 and 3.0% in 2017. Although the external assumptions regarding global commodity prices were improved, their impact can be leveled by worsened business expectations and investors` sentiment amid heightened political uncertainty and delays with unfreezing cooperation with the IMF. The risks to real GDP forecast are seen as balanced, the Inflation Report says.
In Q1 of 2016, as expected, consumer inflation in Ukraine continued to slow down due to tight monetary and fiscal policies, low global commodity prices, and stabilization of inflation expectations. However, a slowdown of inflation (to 20.9% y-o-y in March) proceeded faster than projected. This can be mainly attributed to higher supply of food products in the domestic market due to narrowed export opportunities for domestic producers and increased imports of fruits and vegetables. In addition, tighter competition between tobacco manufacturers resulted in a more moderate rise of the Administered prices and tariffs sub-index than it had been expected. Core inflation in 1Q was in line with the NBU`s forecast.
Although actual inflation came in below the NBU forecast in 1Q 2016, inflation projections remain unchanged and consistent with the targets – 12% at the end of 2016 and 8% at the end of 2017. The unaltered forecast primarily reflects the NBU opinion that most supply side factors are short-lived and their effect will unwind in the following periods. A return of inflation to the target will also be fostered by rising prices on world commodity markets. The forecast of core inflation is in line with the previous prediction (9.1% at the end of 2016). However, given the strong impact of supply side factors in Q1, risks to inflation forecast for 2016 year-end have tilted to the downside.

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