Covid-19 leads to sharp contraction of Ukraine’s economy
The Covid-19 pandemic has taken a firm grip on the world economy. Ukraine will unfortunately not escape this global trend. A scenario-based analysis by the German Economic Team shows both the direct shocks and the total economic effect of the Covid-19 pandemic on Ukraine. Direct shocks include the temporary closure of domestic sectors, shocks to goods and services exports of Ukraine and a drop of remittances income.
We expect Ukraine’s GDP to decline by -7% in 2020 in our baseline scenario. Our optimistic scenario, with milder expectations on domestic and external shocks, yields a contraction by -5.9% and the pessimistic scenario entails a reduction of GDP by -11.2%. Investment will lead this decline, whereas government consumption at least can remain stable. However, Ukraine’s current account deficit will remain under control as imports will decline faster than exports. Overall, the expected economic effect of the pandemic is smaller than the effect of the global financial crisis in 2009. The stabilisation of Ukraine’s macroeconomic fundamentals in the past years helps limiting the economic effect of the global pandemic.