08.11.2016, 17:08
NBU and Experts Discuss Updated Macroeconomic Forecasts for 2016-2018
OREANDA-NEWS. The National Bank of Ukraine has held a roundtable discussion involving external experts to discuss the NBU’s updated macroeconomic forecasts. During the roundtable discussion, NBU Deputy Governor Mr Dmytro Solohub and Director of the Monetary Policy and Economic Analysis Department Mr Sergiy Nikolaichuk discussed with participants the outlook for the Ukrainian economy for 2016-2017 described in the recently released Inflation Report (October 2016).
The NBU has left its annual real GDP growth forecast unchanged at 1.1% by the end of 2016, but revised its economic growth forecast downward to 2.5% by the end of 2017 and 3.5% by the end of 2018. The NBU has kept its year-end headline inflation forecast unchanged at 12% for 2016, 8% for 2017, and 6% for 2018.
The reassessment of assumptions for future commodity price developments was a key factor behind the downward revision of the growth forecast. Thus, steel prices are expected to be higher, while grain prices are projected to be lower than previously forecast.
In addition to updated macroeconomic forecasts, NBU representatives touched on a range of special topics covered in the Inflation Report (October 2016):
— The consequences of Brexit for the global economy:
A quick formation of the UK government that has decided not to trigger the formal exit process immediately until a clear stepwise plan is in place and fading away of the negative effect of the first shock after the referendum in the country caused a downturn in short-term Brexit risks. Most of the Brexit impact will be felt in advanced EU countries, primarily Germany, due to the change in the terms of trade. The Brexit impact on developing countries is expected to be limited.
— The impact of exchange rate volatility on consumer prices:
Consumer prices are more sensitive to small and extremely large exchange rate depreciation episodes. However, during the moderate depreciation episodes and in the context of macroeconomic stabilization, exchange rate volatility is partially absorbed by lowering a price markup. Accordingly, consumer prices become less sensitive to exchange rate changes.
— Analysis of Ukraine’s foreign merchandise trade data:
Since 2013, the structure of Ukraine’s merchandise exports and imports in terms of broad economic categories has been gradually changing After 2013, the structure of exports dominated by intermediate consumption commodities saw an increase in the share of final consumption commodities (food products). In recent years the structure of imports dominated by intermediate consumption commodities has seen a steady increase in the share of capital equipment and processed goods and a decrease in energy imports.
— The transmission of the NBU’s key policy rate changes to financial markets.
Before 2015, the NBU’s discount rate was not operationally relevant and played a sympbolic role in the NBU’s monetary policy, with money market interest rates being loosely linked to the central bank interest rates. Since 2015, market interest rates have become more sensitive to key policy rate changes owing to the redesign of the operational framework of monetary policy and strengthening of the signaling role of the key policy rate through tightening its link with interest rates. The magnitude of the pass-through from policy rate changes to market interest rates is in line with that of developing countries.
The NBU has left its annual real GDP growth forecast unchanged at 1.1% by the end of 2016, but revised its economic growth forecast downward to 2.5% by the end of 2017 and 3.5% by the end of 2018. The NBU has kept its year-end headline inflation forecast unchanged at 12% for 2016, 8% for 2017, and 6% for 2018.
The reassessment of assumptions for future commodity price developments was a key factor behind the downward revision of the growth forecast. Thus, steel prices are expected to be higher, while grain prices are projected to be lower than previously forecast.
In addition to updated macroeconomic forecasts, NBU representatives touched on a range of special topics covered in the Inflation Report (October 2016):
— The consequences of Brexit for the global economy:
A quick formation of the UK government that has decided not to trigger the formal exit process immediately until a clear stepwise plan is in place and fading away of the negative effect of the first shock after the referendum in the country caused a downturn in short-term Brexit risks. Most of the Brexit impact will be felt in advanced EU countries, primarily Germany, due to the change in the terms of trade. The Brexit impact on developing countries is expected to be limited.
— The impact of exchange rate volatility on consumer prices:
Consumer prices are more sensitive to small and extremely large exchange rate depreciation episodes. However, during the moderate depreciation episodes and in the context of macroeconomic stabilization, exchange rate volatility is partially absorbed by lowering a price markup. Accordingly, consumer prices become less sensitive to exchange rate changes.
— Analysis of Ukraine’s foreign merchandise trade data:
Since 2013, the structure of Ukraine’s merchandise exports and imports in terms of broad economic categories has been gradually changing After 2013, the structure of exports dominated by intermediate consumption commodities saw an increase in the share of final consumption commodities (food products). In recent years the structure of imports dominated by intermediate consumption commodities has seen a steady increase in the share of capital equipment and processed goods and a decrease in energy imports.
— The transmission of the NBU’s key policy rate changes to financial markets.
Before 2015, the NBU’s discount rate was not operationally relevant and played a sympbolic role in the NBU’s monetary policy, with money market interest rates being loosely linked to the central bank interest rates. Since 2015, market interest rates have become more sensitive to key policy rate changes owing to the redesign of the operational framework of monetary policy and strengthening of the signaling role of the key policy rate through tightening its link with interest rates. The magnitude of the pass-through from policy rate changes to market interest rates is in line with that of developing countries.
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