The Ukrainian economy experienced a relatively mild contraction in 2020, but its growth rate in 2021 is unlikely to be spectacular. While private household demand remains robust, investment expenditures may fail to recover quickly to pre-crisis levels. Accelerating inflation will remain an issue through end-2021. The NBU is one of the few central banks globally that has already moved to hike its key policy rate. We think further bold steps might be needed to bring inflation back to the target range. Ukraine is unlikely to see any challenges on the current account (C/A) side in 2021, but capital inflows will remain muted. NBU reserves are sufficient to address possible temporary imbalances, which bodes well for the stability of the hryvnia in 2021. The key thing to watch for in the coming months is progress in reforms and cooperation with IFIs. Ukraine has to do a lot to meet the expectations of IFIs and of foreign private investors.

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