Country Report Ukraine February 2012
Market Research Report

Country Report Ukraine February 2012 Market Research Report

Outlook for 2012-16

• The president, Viktor Yanukovych, will attempt to retain a tight grip on power during his mandate until 2015, including through the control of parliament.
• However, victory for his Party of Regions (PoR) in the election in October 2012 is far from certain, as disillusionment with him boosts the opposition.
• Relations with Russia are likely to remain tense, owing to gas disputes and Ukraine's stated intention to push for deeper economic links with the EU.
• However, democratic backsliding in Ukraine has caused a rift with the EU; this may enable Russia to gain greater influence over the Ukrainian economy.
• The IMF programme will guide policy during the first half of the forecast period. The government will target a narrowing of the budget deficit, although it is likely to continue to delay unpopular reforms in 2012.
• Real GDP growth is estimated at 5.2% in 2011, supported by domestic demand and export growth. It is forecast to slow to 2.5% in 2012, owing to weaker export demand growth, before strengthening in 2013-16.
• Following inflation of 8% in 2011, we forecast that inflation will moderate in 2012-16, as a result of tighter fiscal and monetary policy.
• Ukraine is vulnerable to a shortage of external financing, and the current-account deficit widened to an estimated 5.9% of GDP in 2011. We forecast the deficit to remain large, but to average less than 5% of GDP in 2012-16.

Monthly review

• Valeriy Khoroshkovsky became the finance minister, weakening further the position of the unpopular prime minister, Mykola Azarov.
• Recent polls place the ruling PoR behind Fatherland, the party of Yuliya Tymoshenko, the jailed former prime minister.
• The state budget deficit narrowed in 2011, owing to strong revenue growth and controlled expenditure, but larger transfers related to pensions and Naftogaz, the state-owned gas 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.
• The weakening trend in industrial output continued in December, when monthly output declined by 0.5% year on year.
• 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%.
• In December liquidity in the banking system improved from the low levels experienced during the second half of the year.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52

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