For more than four weeks, Ukraine has not experienced a shortage of electricity, and the generators that the business purchased for the sake of uninterrupted operation were gathering dust. But on the night of March 8-9, the enemy resumed its attempts to deprive the country of a stable energy supply – missiles and Iranian Shahed drones flew into the cities. The NBU says that the negative impact of the strikes of the Russian Armed Forces on the energy infrastructure will be felt both in 2023 and in the next 2024.
Without the influence of Russian energy terrorism, the situation in the Ukrainian economy in the spring of 2023 would be noticeably better. As reported by the National Bank of Ukraine in response to a request from Focus, the resumption of economic activity, which began in Ukraine in May 2022, would most likely have continued into the fourth quarter, if not for Russian terrorist attacks against energy infrastructure.
The National Bank notes that interruptions and limitation of electricity supplies affected all types of activities, but a significant part of the business was able to adapt by changing work schedules and using generators. Retail trade and part of the service sector turned out to be particularly flexible.
But due to the peculiarities of production processes, according to the NBU, representatives of the following industries were particularly affected:
large industrial enterprises that are not classified as critical infrastructure; metallurgy, the problems of which led to a deep decline in the extraction of metal ores; energy-intensive enterprises in the food and chemical industries; mechanical engineering; transport; construction.
The NBU argues that the shortage of electricity had a lesser negative impact on agricultural enterprises, with the exception of greenhouses and livestock.
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The NBU notes that these assumptions are still estimates and are based, in particular, on the results of a survey of enterprises given in the Inflation Report for January 2023. Since the State Statistics Service has not yet released statistics for the fourth quarter of 2022, based on which it would be possible to better assess the actual impact of the electricity shortage on the economy. According to preliminary estimates, the economy has contracted by more than 30% in 2022.
Blackout hit hard on the metallurgical industry of Ukraine
Photo: termolit-invest.com
Russian energy terrorism also affected the state budget. At the end of 2022 and the beginning of 2023, due to this factor, according to the NBU, the receipt of the following taxes decreased:
rent; personal income tax; VAT; excise tax; corporate income tax.
The National Bank clarifies that the volume of income tax receipts was affected by the growth of business expenses for adaptation to limited energy supply, in particular, the purchase of fuel for generators and the restoration of damaged power facilities. That is, these unpredictable expenses “ate” the profits of the business and, accordingly, the volume of taxes paid on profits fell.
The company “Nova Poshta” spent about UAH 700 million to provide the departments with generators and alternative means of communication.
Photo: Nova Poshta
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In response to such a worsening situation in the economy, the NBU modeled the following two scenarios for the development of events:
basic: relatively quick restoration of the energy system due to repairs and prompt deliveries of equipment; pessimistic: more significant destruction of power generating enterprises or main networks, temporary shutdown of individual NPP units due to reduced system maneuverability, significant losses in heat and gas supply, as well as temporary long-term power outages in scarce regions of Ukraine.
Fortunately, so far we are talking about the implementation of the baseline scenario, according to which the current NBU macro forecast for 2023 assumes GDP growth by 0.3% and a slowdown in inflation to 18.7%. Compared to the previous October forecast, the indicators had to be worsened, as the shortage of electricity leads to a decrease in production volumes and a reduction in consumer demand.
Under the baseline scenario, the NBU estimates the negative contribution of the electricity shortage to real GDP growth rates at 1.9 percentage points (pp) in 2023, and another 0.6 percentage points in 2024. If the negative scenario were realized , the losses would be more significant – 3.6 p.p. and 1.5 p.p. in 2023 and 2024, respectively.
According to the NBU, due to Russian energy terrorism, the dynamics of Ukraine’s GDP in 2023 will slow down by 1.9 percentage points
“The shortage of electricity also leads to losses in foreign trade, primarily due to an increase in imports of oil products and energy products. According to the baseline scenario, such losses in 2023 are estimated at $2 billion and another $0.5 billion in 2024,” they continue. at the NBU. At the same time, if the negative scenario were realized, it would be a minus of $4 billion this year and $1.2 billion next.
In addition, as a result of growing business expenses, in particular for the purchase of autonomous power supplies and fuel for it, the National Bank estimates the inflationary impact of energy terror in the 2nd-3rd quarters of 2023 at an additional 3 p.p.
However, the situation in the energy sector in 2023 turned out to be better than expected. From the beginning of February, the electricity deficit began to decrease and was completely overcome in the second half of February – early March. The following factors contributed to this:
warming; repair of energy infrastructure; increase in hydroelectric production; increase in renewable generation due to increased daylight hours and clear weather.
Energy production from renewable sources increased in Ukraine in spring
Photo: hightech.fm
Given that the shortage of electricity both in the first quarter and until the end of 2023 may turn out to be less than previous estimates in the absence of further destruction, the NBU expresses its readiness to improve the forecast for real GDP dynamics in 2023. Such an assessment at the National Bank should be prepared in the next forecast cycle and presented at a press briefing on monetary issues on April 27, 2023.
Recall that Focus recently talked about the consensus forecast of non-governmental analysts regarding the duration of the war and GDP dynamics in Ukraine.
As Focus reported, on the morning of March 9, Russia launched an attack on the cities of Ukraine – we are talking about attacking Odessa, Kharkov and Kyiv with missiles and drones.
