The National Bank of Ukraine (NBU) has assessed the potential repercussions of escalating tensions in the Middle East on the Ukrainian economy. NBU Governor Andriy Pyshnyy indicated that the ongoing conflict could exacerbate the challenges already faced by Ukraine, presenting two distinct scenarios for future economic conditions.
The baseline scenario anticipates a gradual decrease in tensions in the Middle East starting in the latter half of 2024, with Brent crude oil prices projected to fall to $80 per barrel by the end of 2026. Under this scenario, inflation in Ukraine is expected to rise by 1.5 percentage points, while GDP growth could decelerate by 0.3 percentage points.
Conversely, the negative scenario envisions a prolonged conflict between the United States and Iran, leading to oil prices remaining above $100 per barrel through 2026. In this case, the NBU forecasts an inflation increase of 3 percentage points and a GDP growth slowdown of 0.6 percentage points.
In light of these scenarios, the NBU has revised its inflation forecast for the end of the year from 7.5% to 9.4%, and adjusted its GDP growth estimate down from 1.8% to 1.3%. Pyshnyy emphasized that the bank has prepared response strategies, noting that the decision to halt interest rate cuts in March was timely. The interest rate has been maintained at 15%, with expectations that it will remain stable until at least the second quarter of 2027.
Additionally, the recent military actions by the U.S. and Israel against Iran have led to significant disruptions, including the blockade of the Strait of Hormuz by Iranian forces. This blockade has caused a spike in global oil prices, directly impacting fuel costs in Ukraine, where both gasoline and diesel prices have surged. The inflationary pressures are expected to persist as a result of these developments.
The National Bank of Ukraine has outlined two economic scenarios in light of rising tensions in the Middle East, with potential impacts on inflation and GDP growth. The bank has adjusted its forecasts accordingly, citing the influence of global oil prices on the domestic economy.