Country Forecast Ukraine November 2011 Updater
Market Research Report

Country Forecast Ukraine November 2011 Updater Market Research Report

Overview

The president, Viktor Yanukovych, is expected to retain a firm grip on power. The erosion of the democratic gains of the "Orange Revolution" will continue. The lending agreement with the IMF will guide economic policy in 2011-13, but compliance will probably be patchy. The government will target a narrowing of the budget deficit, and limited further progress on pro-market reforms is likely. The economy grew by 4.2% in 2010. The Economist Intelligence Unit estimates growth to remain at 4.2% in 2011, supported by higher steel prices. We forecast growth of 3.4% in 2012 as the external environment deteriorates, and an average of 4.3% annually in 2013-16. Inflationary pressure is forecast to ease in the second half of 2011 and further in 2012, owing to lower food and commodity prices. The current-account deficit is expected to remain broadly contained, 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

On October 11th Yuliya Tymoshenko, the former prime minister, was sentenced to seven years in prison. The conviction has not completely derailed negotiations over an association deal with the EU including free trade, but it has killed hopes of any implementation in the near term. This may push Ukraine closer to Russia.

Economic policy outlook

In September the National Bank of Ukraine (NBU, the central bank) supported the hyrnvya with large sales of foreign currency. This was triggered to meet increased demand for foreign currency from the population, amid anxiety about the prospect of hyrnvya depreciation. The NBU may need to make further interventions.

Economic forecast

In September metallurgical output decreased as the external picture worsened. We maintain our estimate of 4.2% growth in 2011, but have lowered our growth forecast for 2012 to 3.4% from 3.8% previously, owing to downward revisions to our forecast for the world economy.

Please Note: Due to the Nature of This Report The Toc is Not Available