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Country Forecast Ukraine February 2012 Updater

  • Publication Date:February 2012
  • Publisher:EIU
  • Product Type: Report
  • Pages:18

Country Forecast Ukraine February 2012 Updater


The president, Viktor Yanukovych, will attempt to retain a tight grip on power during his mandate until 2015, although his popularity has fallen. The erosion of the democratic gains of the "Orange Revolution" will continue. The lending agreement with the IMF will guide economic policy in 2012-13, but compliance will be patchy and the agreement could collapse. The government will target a narrowing of the budget deficit, and limited progress on pro-market reforms is likely. Real GDP grew by a preliminary 5.2% in 2011, supported by a strong harvest. The Economist Intelligence Unit forecasts growth of 2.5% in 2012 as the external environment deteriorates, and an average of 4.3% annually in 2013-16. Inflationary pressure is forecast to ease further in 2012, owing to lower food and commodity prices. The current-account deficit is expected to be broadly contained in 2012-16, but Ukraine remains vulnerable to a shortage of external financing pursuant, for example, to a banking crisis in the euro area.

Key changes from last month

Political outlook

Valeriy Khoroshkovsky became the finance minister in January, weakening the position of the unpopular prime minister, Mykola Azarov. There could be further cabinet changes to boost the government before the election in October. Polls place the ruling Party of Regions (PoR) behind Fatherland, the party of Yuliya Tymoshenko, the jailed former prime minister.

Economic policy outlook

The state budget deficit shrank in 2011, owing to strong revenue growth and controlled expenditure, but larger transfers related to pensions and Naftogaz, the state energy company, prevented a greater improvement. Ukraine's goal of securing a new gas price deal with Russia has remained elusive, as the latest round of talks, in mid-January, proved fruitless.

Economic forecast

Real GDP grew by a preliminary 4.6% year on year in the fourth quarter, slowing from 6.6% in the third quarter. For 2011 as a whole growth was 5.2%. We forecast that the deteriorating external environment will lead to a sharp weakening of real GDP growth in 2012, to 2.5%.

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