Country Report Ukraine January 2012
Market Research Report

Country Report Ukraine January 2012 Market Research Report

Outlook for 2012-16

• The president, Viktor Yanukovych, is expected to keep a grip on power in 2012-15, including through control of parliament and the government. Public disillusionment with the president may boost the opposition, however.
• 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 may continue to drag its feet with regard to unpopular reforms.
• Real GDP growth is estimated at 4.9% in 2011, supported by domestic demand and export growth. It is forecast to slow to 2.5% in 2012 (previously 3.2%), owing to weaker export demand growth, before strengthening in 2013-16.
• Owing to lower food prices in the second half of 2011, we estimate average inflation of 8% in 2011. Inflation is forecast to 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 5.2% of GDP in 2011. We forecast the deficit to remain large, but to average less than 5% of GDP in 2012-16.

Monthly review

• On December 19th the EU refused to sign the Association Agreement with Ukraine. The technical requirements had been met, but the EU is not prepared to condone the severe democratic backsliding in Ukraine.
• On December 23rd Yuliya Tymoshenko, the main opposition leader and previous prime minister, lost her appeal against conviction.
• The Ministry of Finance reached an agreement with VTB, a Russian bank, to extend for another six months the loan of US$2bn that VTB granted Ukraine in June 2010.
• The State Property Fund (SPF) has begun sales of assets in the energy sector.
• Consumer prices edged up by just 0.1% month on month in November. Annual inflation fell from 5.4% in October to 5.2% in November.
• Industrial output growth continued to weaken in November to 3.8% year on year-the slowest rate of expansion in 2011.
• The monthly current-account deficit in October, at US$1.5bn, was the largest so far in 2011.

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