The current crisis will be very painful for the Ukrainian economy, but the depth will likely not be any worse than for other countries in the region. This is drastically different than in previous crises when Ukraine dropped substantially more than peer countries. Although uncertainty still dominates the landscape, we currently estimate the FY GDP decline at around 6-7% in 2020. Although the dramatically negative Q2 will be followed by a swift recovery in Q3-Q4 (baseline scenario), a return to pre-crisis output levels seems a distant prospect. On the external accounts side, the pattern will be relatively favorable for Ukraine – the decline in imports will be much deeper than the fall of exports, which will serve to narrow the C/A deficit to about 2-2.5% of GDP. If official funding is secured – which is now our base scenario – the C/A gap will be safely covered and exchange rate pressures will be virtually non-existent. Following the practice of other countries, the Ukrainian government has earmarked substantial budget support to households and businesses to maintain consumption and to compensate for quarantine-related losses. The amended budget now sees a deficit of 7.5% of GDP – unprecedented in decades but still manageable given the prudent fiscal policies Ukraine has pursued in the last few years. The bulk of this deficit is expected to be covered with external borrowing from IFIs.

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