The forty-seventh week of the second year of the war brought substantial worsening in consumer sentiment in December, while we still think this is not sustainable. The government is still concerned with finding local resources to finance the budget deficit, while in extreme cases there might be a reduction in social expenses. The NBU rather successfully managed to calm the FX market down, thereby even supporting a small appreciation trend in hryvnia.
After years of crises, hopes for 2024 are somewhat clouded, not least due to the geopolitical circumstances. (Geo)politics and interest rate cuts are the buzzwords for the new year on the currency markets, with the former representing potential upward pressure for the safe havens CHF and USD. In Poland, local politics put pressure on the exchange rate. The Albanian lek remains strong backed by fundamentals. Finally, while the rouble showed its stable side recently, supported by several factors, the NBU had to break a devaluation trend.
This issues features
In the forty-sixth week of the second year of the war, inflation in December continues to surprise by approaching the NBU's targeted level. The statements of NBU officials regarding the FX market in 2023 support our view on its relative stability and a rather moderate hryvnia devaluation over the year. Additionally, the FX market has finally shown less volatility amid attempts by the NBU to stop recent trends.
"Better-than expected" with successes in macro-managment on both sides, this is the case for the economies of Russia and Ukraine. However, inflation or FX had been challenging Russia recently. Ukraine is facing its most difficult year yet in terms of financial support, some devaluation pressure is currently visible. Deliberations about the usage/seizure of Russian state assets to fund Ukraine gather pace, while the West will most likely continue working on sanctions policies (incl. structural circumvention). Overall, the economy and finance may again become a more important area of "warfare" in 2024.