Outlook and key risks for Ukraine in 2023

After nine months of devastating war, we expect Ukraine’s economic contraction to reach 31% in 2022. Prompt monetary and fiscal policy responses and $23bn of external financing have prevented a much deeper contraction.

What you will learn:

• Extreme economic challenges will persist next year, and we expect the economy to contract by a further 2%-2.5% y/y. Our forecast rests on assumptions that the war lasts until at least mid-2023, Russia’s infrastructure attacks subside, the Black Sea grain initiative remains in place, and the West’s financial support is sufficient to maintain financial stability. But the risks are to the downside.
• Policy challenges will also persist. The 2023 budget assumes that nearly all (94%, or $34bn) of Ukraine’s financing needs will be met via external funding, $15bn of which would come from the IMF. This may turn out to be optimistic, and pressure on the central bank to monetise the deficit will persist. Still, we assume this monetary financing remains limited, avoiding runaway inflation.