National Bank of Ukraine calculates consequences of Kakhovka HPP destruction for country's GDP

The destruction of the Kakhovka Hydroelectric Power Plant (HPP) will affect the contribution to the real GDP of Ukraine by 0.2%. Source: Minfin media outlet, with reference to the estimates made by the National Bank of Ukraine In the short term, this influence will be limited.

"It will be caused mainly by the negative influence of the decrease in water consumption in the industrial activity of Ukraine's southeast, specifically the operation of a number of metallurgical businesses, agricultural enterprises and food industry. The latter two will be affected by a decrease in the harvest of sunflower and vegetables grown in Kherson, Zaporizhzhia and Dnipropetrovsk Oblasts," the National Bank of Ukraine forecasts.

The National Bank stressed that the biggest risks for the economy mostly concern the decrease of its potential. Such risks are the decrease of productivity of agriculture, the loss of irrigation systems, and the loss of property and production capacity in the flooded territories, as well as worsening of the residents' expectations and migration both within Ukraine and abroad.

The bank's analysts believe that the losses in the harvest of grains and oil crops will lead to the decrease in the export of some food products. Moreover, due to the decrease of domestic supply of vegetables, their import will rise.  

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"This, according to the first estimates of the National Bank, may lead to an expansion of the deficit in trade during the next two years.

Maximal losses are estimated to be US£0.4 billion in 2023 and US£0.7 billion in 2024," - reads the assessment by the National Bank. This terrorist act committed by Russia will have long-term consequences for Ukraine and will increase the cost of recovery. The National Bank of Ukraine explained that at the moment, it is impossible to fully assess the aftermath of this disaster since the territory that has been affected the most is now under the Russian occupation.

Background:

• Earlier, the National Bank of Ukraine estimated possible losses in vegetable harvest as a result of the destruction of the Kakhovka HPP.
• According to the pessimistic scenario, the losses in harvest will reach 10-14% but the National Bank only considers it a risk, while real losses are estimated to reach 5%.
• The National Bank also stated that the Kahkovka HPP destruction may cause a 0.3-percent rise of inflation this year.

  The latest forecast of the National Bank concerning the inflation this year is 14.8%.

• The State Statistics Service of Ukraine reported that at the end of May, inflation in Ukraine on the annual level dropped to 15.3%.

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