Despite the significant headwinds Ukraine has faced in 2023, economic activity is surprising to the upside. Real GDP will be up more than 5% this year, inflation has plummeted to single digits, NBU reserves hit historical highs, and budget-deficit financing has been relatively smooth. Thanks to these positive developments, the economy is on a much firmer footing. Domestic demand strengthened and business sentiment improved. The financial sector continues to operate seamlessly.

Nonetheless, we expect 2024 to present a new set of challenges, not the least of which is uncertainty about the size and sustainability of foreign financial aid. At this point, the risk of a significant cut in financial aid is low, and we see Ukraine securing at least what is needed to keep the country’s external accounts fully balanced through 2024. This means the NBU will remain in a position to keep the FX market firmly under control and may even take decisive FX liberalization steps. Also, all preconditions are now in place for managed and gradual hryvnia depreciation. We see the end-2024 exchange rate at USH41/US$.

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The economy is likely to remain on track to grow if no new, major safety risks materialize, although we expect it will slow vs. 2023. Inflation will stay in the range of 6‒7% at least until summer before picking up somewhat by the end of the year. NBU’s monetary-policy easing cycle is almost done, but symbolic cuts are possible in 2H24 if inflation and FX market risks remain balanced.While Ukraine is set to receive enough foreign funding to cover gaps in external accounts, the aid package may fall short of the budget needs.

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Raising over US$40bn in external funding that the government needs is not guaranteed, and the risk of money printing by the NBU will be present in 2024.One of the things to keep an eye on next year is the restructuring of Ukraine’s Eurobonds. Its terms will heavily depend on the government’s assessment of the length of the war and sustainability of foreign financial aid.

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