Macro: COVID and Economic Update Ukraine: Growth outlook improves but fiscal challenges and IMF cooperation

Coronavirus: After the doubling of the average number of infected people and the high patient load in the hospitals, the so-called weekend quarantine was introduced and criticized by markets and businesses.
Growth outlook: Although the GDP growth in Q3 exceeded our expectations, the quarantine is likely to slow it down in Q4. However, our forecast for GDP growth in 2021 remains unchanged 3.8%. The real wages and retail sales also rose, while the unemployment rate declined by 8.6% mom in September. At the same time, business activity expectations index in October fell to 47.8 points due to deteriorating outlook for services sector which implicates a partial reversal in those trends.
Monetary policy: Because of NBUs loose monetary policy we expect it to maintain the key rate unchanged at 6%. Additionally, the UAH managed to strengthen slightly but the further withdrawal of non-residents from UKRGB market and uncertainty about cooperation with the IMF contributed to more weakness of the domestic currency.
Fiscal policy: In October the state budget revenue January-September already reached 98.5% of the 2020 plan. However, in the light of the ongoing problems with the IMF there could be complications in the public debt servicing plans for 2021.
Ukraine cooperation with the IMF: The successful cooperation with the IMF is possible after the solution on three key problem areas. Even though a staff-level agreement might be secured until the end of the year, the approval of the second tranche of the IMF loan will most likely be moved to 2021.